Review Notes Ch 2

Review Notes Ch 2 - CHAPTER 2 A Further Look at Financial...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 2 A Further Look at Financial Statements Study Objectives 1. Identify the sections of a classified balance sheet. 2. Identify and compute ratios for analyzing a company's profitability. 3. Explain the relationship between a retained earnings statement and a statement of stockholders' equity. 4. Identify and compute ratios for analyzing a company's liquidity and solvency using a balance sheet. 5. Use the statement of cash flows to evaluate solvency. 6. Explain the meaning of generally accepted accounting principles. 7. Discuss financial reporting concepts. 2-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Study Objective 1 - Identify the Sections of a Classified Balance Sheet. In a classified balance sheet, companies often group similar assets and similar liabilities together using standard classifications and sections. This is because items within the groups have similar economic characteristics. The groupings help users determine: (1) whether the company has enough assets to pay its debts and (2) what claims by short-and long-term creditors exist on the company's total assets. A classified balance sheet generally contains the following standard classifications: Current Assets Assets that are expected to be converted to cash or used in the business within a one year or one operating cycle. Examples of current assets: cash, short-term investments (which include short- term U.S. government securities), receivables (accounts receivable, notes receivable, and interest receivable), inventories, and prepaid expenses (rent, supplies, insurance, and advertising). On the balance sheet, current assets are listed in the order in which they are expected to be converted into cash (order of liquidity). Long-Term Investments Assets that can be converted into cash, but whose conversion is not expected within one year. These include long-term assets not currently used within business operations (i.e., land, buildings, etc.) and investments in stocks and bonds of other corporations. Property, Plant, and Equipment Assets with relatively long useful lives. Assets currently used in operating the business. Examples include land, buildings, machinery, equipment, and furniture and fixtures. Record these assets at cost and depreciate them (except land) over their useful lives. The full purchase price is not expensed in the year of purchase because the assets will be used for more than one accounting period. Depreciation is the practice of allocating the cost of assets to a number of years. Depreciation expense is the amount of the allocation for one accounting period. Accumulated depreciation is the total amount of depreciation that has been expensed since the asset was placed in service. Cost less accumulated depreciation is reported on the balance sheet.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/18/2010 for the course ACCOUNTING 6020 taught by Professor Seki during the Spring '10 term at FAU.

Page1 / 8

Review Notes Ch 2 - CHAPTER 2 A Further Look at Financial...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online