Financial Statements

Financial Statements - Financial Statements Four Main...

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Unformatted text preview: Financial Statements Four Main Financial Statements Balance Sheet Income Statement Statement of Stockholders Equity Statement of Cash Flows Balance Sheet Mirrors the Accounting Equation Assets = Liabilities + Equity Uses of funds = Sources of funds Assets are listed in order of liquidity Liabilities are listed in order of maturity Equity consists of Contributed Capital and Retained Earnings Assets To be reported on a balance sheet, an asset must 1. Be owned (or controlled) by the company 2. Must possess expected future economic benefits Assets are listed in order of liquidity . Current assets comprise assets that can be converted to cash within a year . Long-term assets cannot be easily converted to cash within a year. Examples of Current Assets Cash currency, bank deposits, and investments with an original maturity of 90 days or less (called cash equivalents); Marketable securities short-term investments that can be quickly sold to raise cash; Accounts receivable, net amounts due to the company from customers arising from the sale of products and services on credit (net refers to uncollectible accounts explained in Module 6); Inventory goods purchased or produced for sale to customers; Prepaid expenses costs paid in advance for rent, insurance, advertising or other services. Examples of Long-Term Assets Property, plant and equipment (PPE), net land, factory buildings, warehouses, office buildings, machinery, motor vehicles, office equipment and other items used in operating activities (net refers to subtraction of accumulated depreciation, the portion of the assets cost that has been transferred from the balance sheet to the income statement, which is explained in Module 6); Long-term investments investments that the company does not intend to sell in the near future; Intangible and other assets assets without physical substance, including patents, trademarks, franchise rights, goodwill and other costs the company incurred Apples Assets Cisco Systems Assets Intellectual Capital NOTE : While resources expended for research and development reflect and economic asset, they generally are expensed as incurred. INSIGHT : Pharmaceutical firms do not have assets reflecting the full amount of money that they have spent developing drugs. These amounts, for the most part, have been expensed in the past and serve to reduce retained earnings. Internally developed trade marks are also economic assets, but may not show up on the balance sheet. [The purchase of externally developed trademarks are treated as assets.] Apples Liabilities and Equity Examples of Current Liabilities Accounts payable amounts owed to suppliers for goods and services purchased on credit....
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Financial Statements - Financial Statements Four Main...

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