Chapter_2 - 2 A FURTHER LOOK AT FINANCIAL STATEMENTS 2-1...

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2-1 A FURTHER LOOK AT FINANCIAL STATEMENTS Accounting, Fourth Edition 2
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2-2 1. Identify the sections of a classified balance sheet. 2. Identify and compute ratios for analyzing a company’s profitability. 3. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. 4. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. 5. Use the statement of cash flows to evaluate solvency. 6. Explain the meaning of generally accepted accounting principles. 7. Discuss financial reporting concepts. Study Objectives
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2-3 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Presents a snapshot at a point in time . u To improve understanding, companies group similar assets and similar liabilities together. Illustration 2-1 Standard Classifications
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2-4 Illustration 2-2 The Classified Balance Sheet SO 1
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2-5 Illustration 2-2 The Classified Balance Sheet SO 1
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2-6 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Assets that a company expects to convert to cash or use up within one year or the operating cycle , whichever is longer . u Operating cycle is the average time it takes from the purchase of inventory to the collection of cash from customers. Current Assets
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2-7 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. Companies list current asset accounts in the order they expect to convert them into cash. Current Assets Illustration 2-3
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2-8 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Investments in stocks and bonds of other companies that are held for more than one year. u Investments in long-term assets such as land or buildings not currently being used in operating activities. Long-Term Investments Illustration 2-4
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2-9 Property, Plant, and Equipment The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Long useful lives . u Currently used in operations. u Depreciation - allocating the cost of assets to a number of years. u Accumulated depreciation - total amount of depreciation expensed thus far in the asset’s life.
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2-10 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. Illustration 2-5 Property, Plant, and Equipment
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2-11 Intangible Assets The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Assets that do not have physical substance. Illustration 2-6
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2-12 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Obligations the company is to pay within the coming year. u Usually list notes payable first, followed by accounts payable. u Other items follow in order of magnitude.
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