Chapter 4A(Balance Sheet Statement

Chapter 4A(Balance Sheet Statement -...

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The Balance Sheet Statement Learning Objectives 1. How balance sheet accounts are measured, classified and  presented. 2. How balance sheet information is used. 3. Balance sheet terminology and format outside the U.S. 4. How footnotes aid to the understanding of the firm’s  accounting policies, contingent liabilities, subsequent  events, and related-party transactions  4-1 1
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The Accounting Equation Assets = Liabilities + Equity Shareholders’ Equity: What’s left of the company’s assets after paying off liabilities. It also referred to as net assets. 2
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Balance sheet  classification: Overview Current assets • Property, plant and equipment • Investments • Other assets Current liabilities Long-term debt Other liabilities Preferred and common stock Additional paid-in capital Retained earnings ASSETS LIABILITIES EQUITY = + Contributed Capital 3
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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 asset ASSETS LIABILITIES EQUITY = + How the money is invested Where the money came from 4
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Balance sheet Classification and Account  Measurement -  Current assets Amortized cost or current market value Net realizable value Lower of cost or current market value 4-5 5
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6 Assets – classification and measurement Resources with future economic benefit to a business entity as a result of a past transaction. Current Assets: cash and other assets that are reasonably expected to be realized in cash or sold , or consumed during a normal operating cycle or one year, whichever is longer Examples: Cash and cash equivalents, short- term investments (reported at the fair value), receivables (estimated amount collectible), inventory (LCM), prepaid expenses, etc.
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Measurement - PPE, Investments and Intangibles Historical cost minus accumulated depreciation except that fair market value is used when “impaired” 4-7 7
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Chapter 4A(Balance Sheet Statement -...

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