08 Financial Statements 2 - 08 FinancialStatements2...

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Financial Statements 2 Financial Statements 2 - The Balance Sheet - The Balance Sheet Accountancy 301 Spring 2011 Flora Zhou 08
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Today Today ’s agenda ’s agenda • Elements of Balance Sheet • Balance Sheet classification • Balance Sheet valuation  – Fair value concept – Problems with a mixed attribute model • Company assignment for measurement  project
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Elements of the balance sheet Elements of the balance sheet • Probable future economic benefits • Obtained from past transactions or events • Probable future sacrifices of economic benefits • Arising from present obligations • To transfer assets or provide services in the future • As a result of past transactions or events • The residual interest in  net  assets. ASSETS LIABILITIES EQUITY = + How the money is  invested Where the money came  from
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Assets Assets • “Probable future economic benefits obtained or  controlled by a particular entity as a result of past  transactions or events” – SFAC 6 – Economic resource (i.e. probable future economic  benefit) – Firm has a right to use the resource as a result of a past  transaction or event (cash or  goods or  services have  changed hands) • An exchange of two promises (i,.e., an unexecuted contract)  does not create an asset (i.e., sales contract) – Value of the resource can be measured or estimated with  a reasonable degree of precision  • e.g., advertising, R&D, human resources generally not assets
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Liabilities Liabilities • “Probably future sacrifices of economic benefits  arising from present obligations of a particular entity  to transfer assets or provide service to other entities  in the future as a result of past transactions or  events.” – SFAC6 – Firm has an obligation as a result of past transactions or  events • An exchange of two promises (i.e., an unexecuted contract) does  not create a liability (e.g., sales contract) – Future payment is probable – Payment by the firm is of a reasonably definite amount,  and to make at a reasonably definite future time.
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Stockholders Stockholders ’ Equity ’ Equity • “The residual interest of an entity that remains  after deducting its liabilities.” – Contributed capital is the assets contributed by  stockholders directly to the business from offerings of  new stock • Common stock at par • Additional paid-in capital – Retained earnings are reinvested earnings (cumulative  earnings less dividends) – Miscellaneous items (comprehensive income items)
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Balance sheet classification: Balance sheet classification: Overview Overview • Current assets • Long-term assets • Investments
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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08 Financial Statements 2 - 08 FinancialStatements2...

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