3_The Balance Sheet - Last Class Accounting Process...

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Last Class Accounting Process Identified issues of which, when and how – for transactions Objectives To understand the elements of the Balance Sheet To introduce cash vs. accrual accounting Agenda The Balance Sheet Elements Types Recognition, Measurement, Classification Accrual vs. Cash Accounting Comprehensive Income Take-Aways
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Balance Sheet Elements Assets = Liabilities + Owners’ Equity Resources = Obligations or Claims on resources = Fixed Claims + Residual Claims of of Outsiders Owners Issues in Recording Assets and Liabilities Recognition * When should an economic resource/obligation be recognized as an asset/liability on the F/S? Measurement * How should the asset and liability be initially measured or valued? * How should the asset and liability be subsequently measured or valued? Assets (Definition) resources which will convey probable future economic benefits where the firm: has obtained the right to their future use as a result of a past transaction can measure the value of the future benefit with reasonable precision Possible Examples of Assets Cash Accounts Receivables Advertising Expenditures (*) Asset Measurement/Valuation Metrics
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Historical Cost : amount originally paid to acquire the asset. Current replacement cost: cost to currently replace asset with the same attributes as the existing asset. Current realizable value: proceeds received from the disposal of the asset in the ordinary course of business . Market price : proceeds received from the disposal of an asset when traded on well- functioning market Present value: discounted expected future cash flows. Types of Assets and Their Valuation Monetary Assets have a future benefit which is a contractually fixed amount of cash * e.g., cash, accounts receivables, long-term receivables * current monetary assets valued at expected cash inflow * non-curren t monetary assets valued at present value of expected future cash inflow Non-monetary Assets have a future benefit which is not a contractually fixed amount of cash * most are valued at historical cost
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This note was uploaded on 10/17/2011 for the course MGMT 600 taught by Professor Johnston during the Spring '11 term at Purdue University-West Lafayette.

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3_The Balance Sheet - Last Class Accounting Process...

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