Balance sheet & notes

Balance sheet & notes - Learning Objectives...

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1 Intermediate Accounting I The Balance Sheet & Notes to the Financial Statements 1 HKU/FBE/BUSI0019 Dr. Min WU Learning Objectives 1. Describe the specific element of the balance sheet (assets, liabilities, and owners’ equity), and prepare a balance sheet ith assets and liabilities properly classified into current and with assets and liabilities properly classified into current and noncurrent categories. 2. Identify the different formats used to present balance sheet data. 3. Analyze a company’s performance and financial position rough the computation of financial ratios 2 through the computation of financial ratios. 4. Recognize the importance of the notes to the financial statements and outlined the types of disclosures made in the notes. 5. Understand the major limitations of the balance sheet. The Balance Sheet ± Presents a listing of an organization’s assets and liabilities at a certain time point. ± The difference between assets and liabilities is called equity . ± Represented by the basic accounting equation: 3 Assets = Liabilities + Owners’ Equity Assets Elements of the Balance Sheet ± The inclusion of “probable” acknowledges that Probable future economic benefit obtained or controlled by a particular entity as accounting is not an exact science ± The primary purpose of the balance sheet is to help forecast the future. a company economically 4 a result of past transactions or events ± If a company economically controls the future economic benefits associated with an item, that item qualifies as an asset- even if legally it is not owned.
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2 Elements of the Balance Sheet ± “Obligation” includes gal moral social and Liability legal, moral, social, and implied commitments. ± An obligation to provide services is also a liability. ± Assets and liabilities Probable future sacrifice of economical benefit arising from a present obligation of a particular entity to transfer assets or rovide services other 5 arise from past events. provide services to other entities in the future as a result of result of past transactions past transactions or events. Elements of the Balance Sheet E = TA L ± OE = TA - TL Equity Residual interest in the sets of an entity that 6 assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest. How to Classify Items on the Balance Sheet 9 urrent ( 1 year) Cu e t ( yea ) 9 Noncurrent (> 1 year) 9 Order of liquidity 9 Historical cost 7 Working capital = CA - CL It is the liquid buffer available in meeting financial demands and contingencies of the near future.
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This note was uploaded on 01/03/2011 for the course BUS 19 taught by Professor Wu during the Winter '10 term at HKU.

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Balance sheet & notes - Learning Objectives...

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