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Intermediate Accounting

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3 The Balance Sheet and Notes to the Financial Statements Overview This chapter covers the balance sheet in more detail than you likely encountered in your introductory accounting course. In addition, the topic of financial statement notes is included. The balance sheet is the most important financial statement to many users. A wealth of information is contained on it. It reports the financial position of a company as of a particular date. Three kinds of accounts are included: assets, liabilities, and equity. Income statement accounts (revenues, gains, expenses, losses) are not included on a balance sheet. However, as discussed in Chapter 2, income statement accounts are closed out to equity. Classified balance sheets are the norm and refer to the segregation of assets and liabilities into current and noncurrent categories. Financial statement notes can be very significant for a company. Large companies, or companies with complicated transactions, can produce notes to the financial statements that are several times lengthier than the financial statements themselves. Subsequent chapters will discuss required disclosures as they relate to specific kinds of transactions or activities. Some notes are required for nearly all companies. These include a summary of significant accounting policies, additional information to support summary totals, information about items not included in the financial statements, supplementary information, and subsequent events (if any). Learning Objectives Refer to the Review of Learning Objectives at the end of the chapter. It is crucial that this section of the chapter is second nature to you before you attempt the homework, a quiz, or exam. This important piece of the chapter serves as your CliffsNotes or “cheat sheet” to the basic concepts and principles that must be mastered. If after reading this section of this chapter you still don’t feel comfortable with all of the Learning Objectives covered, you will need to spend additional time and effort reviewing those concepts you are struggling with.
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3-2 Chapter 3 The following “Tips, Hints, and Things to Remember” are organized according to the Learning Objectives (LOs) in the chapter and should be gone over after reading each of the LOs in the textbook. Tips, Hints, and Things to Remember Subsequent chapters (especially 5, 7, and 10–15) delve into even more particulars about the balance sheet and the accounts found thereon. Hence, it is of great importance that you master the material in this chapter before moving on. The content in Chapter 3 won’t “go away” if you don’t study it adequately in the hopes that its principles won’t appear in future chapters. It is a foundational chapter that is key to understanding later chapters.
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