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The Balance Sheet - The Balance Sheet Assets Probable...

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The Balance Sheet
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Assets Probable future economic benefits obtained or controlled by the firm as a result of past transactions or events Divided into: Current Assets Long-Term Assets Represent uses of funds 2
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Current Assets Cash and assets that will be (or are expected to be) converted into cash during the operating cycle or within a year, whichever is longer Presented in order of liquidity Major items Cash and equivalents Marketable securities Accounts receivable Inventories Pre paid expenses 3
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Cash and Marketable Securities Cash and equivalents Negotiable checks, unrestricted balance in checking accounts, savings accounts, money market funds, etc. Marketable securities Debt or equity securities of other firms or governments Intention to convert into cash during the current period Value Carried at fair value U.S. Treasury bills and other money market instruments are carried at face value (value at maturity) Long term debt and equity securities are generally carried at current market values 4
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Accounts Receivable and Inventory Accounts Receivable Amounts due from sales or services Carried at net realizable value (net of allowances for bad debts) Inventories Carried at lower of cost or market Categories Goods on hand Raw materials Work in process Finished goods The last three categories apply to manufacturers Will discuss LIFO/FIFO issue later 5
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Pre Paid Expenses Expenditures made in advance of the use of the service or goods. Examples Insurance Advertising 6
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Tangible Long-Term Assets Land Carried at acquisition cost Not subject to depreciation Natural resources are depleted Buildings Cost plus permanent improvements Depreciated over the useful life Machinery Acquisition cost plus costs of delivery, installation, and permanent improvements Depreciated over the useful life Construction in Progress Assets under construction Transferred to permanent asset account upon completion 7
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Depreciation Accumulated Depreciation Carries the to-date depreciation of plant assets Factors used in depreciation calculation Asset cost Length of the life of the asset
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