ch05+student - Chapter 5 Balance Sheet and Statement of...

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Chapter 5: Balance Sheet and Statement of Cash Flows
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Balance Sheet Additional Information Usefulness Limitations Classification Supplemental disclosures Techniques of disclosure Balance Sheet and Statement of Cash Flows Statement of Cash Flows Purpose Content and format Preparation Usefulness
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Balance Sheet , also referred to as the statement of financial position : 1. Reports assets, liabilities, and equity at a specific date. 2. Provides information about resources, obligations to creditors, and equity in net resources. 3. Helps in predicting amounts, timing, and uncertainty of future cash flows. Balance Sheet LO 1 Explain the uses and limitations of a balance sheet.
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u Computing rates of return. u Evaluating the capital structure. u Assess risk and future cash flows. u Analyze the company’s: Liquidity, Solvency, and Financial flexibility. Balance Sheet Usefulness of the Balance Sheet LO 1 Explain the uses and limitations of a balance sheet.
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u Most assets and liabilities are reported at historical cost. u Use of judgments and estimates. u Many items of financial value are omitted. Limitations of the Balance Sheet Balance Sheet LO 1 Explain the uses and limitations of a balance sheet.
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Illustration 5-1 In practice you usually see little departure from these major subdivisions. Balance Sheet Classification LO 2 Identify the major classifications of the balance sheet.
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Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer. Current Assets Classification in the Balance Sheet Illustration 5-2 LO 2 Identify the major classifications of the balance sheet.
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Review The correct order to present current assets is a. Cash, accounts receivable, prepaid items, inventories. b. Cash, accounts receivable, inventories, prepaid items. c. Cash, inventories, accounts receivable, prepaid items. d. Cash, inventories, prepaid items, accounts receivable. Classification in the Balance Sheet LO 2 Identify the major classifications of the balance sheet.
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u Generally any monies available “on demand.” u Cash equivalents - short-term highly liquid investments that mature within three months or less. u Restrictions or commitments must be disclosed. Cash LO 2 Illustration 5-3 Balance Sheet – “Current Assets”
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Illustration 5-4 Balance Sheet—Restricted Cash Cash LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets”
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Type Valuation Classification Held-to- Maturity Debt Amortized Cost Current or Noncurrent Trading Debt or Equity Fair Value Current Available- for-Sale Debt or Equity Fair Value Current or Noncurrent Short-Term Investments LO 2 Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets”
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ch05+student - Chapter 5 Balance Sheet and Statement of...

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