Chapter 2 The Balance Sheet

Chapter 2 The Balance Sheet - Chapter 2 The Balance Sheet...

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Chapter 2: The Balance Sheet Tuesday, January 31, 2012 8:19 PM 1. Financial condition 1.a. The balance sheet shows the financial condition/position of a company on a particular date 1.a.i. Assets = liabilities + stockholders' equity 1.a. Consolidation: 1.a.i. When a parent owns more than 50% of the voting stock for a subsidiary, the financial statements are combined for the companies even though they are separate legal entities->the companies are in substance one 1.a. Balance sheet date is prepared at a point in time at the end of an accounting period, a year, or a quarter 1.a. Common-size balance sheet: a form of vertical ratio analysis that allows for comparison of firms with different levels of sales or total assets by introducing a common denominator 1.a.i. Also useful to evaluate trends within a firm and to make industry comparisons 1.a.ii. Expresses each item on the balance sheet as a percentage of total assets 1. Assets 1.a. Current assets: include cash or those assets expected to be converted into cash within one year or one operating cycle (whichever is longer) 1.a.i. Operating cycle: the time required to purchase or manufacture inventory, sell the product, and collect the cash 1.a. Working capital/net working capital: the amount by which current assets exceed current liabilities 1.b. Cash-cash in any form, cash awaiting deposit or in a bank account 1.c. Marketable securities-cash substitutes, cash that is not needed immediately in the business and is temporarily invested to earn a return 1.a.i. US treasury bills, certificates, notes, and bonds->highly liquid 1.a. Accounts receivable: customer balances outstanding on credit sales and are reported on the balance sheet at their net realizable value (the actual amount of the account less an allowance for doubtful accounts) 1.a.i. Allowance for doubtful accounts affects both the valuation of accounts receivable on the balance sheet and the recognition of bad debt expense on the income statement 1.a. Inventories: items held for sale or used in the manufacture of products that will be sold 1.a.i. Retail company: merchandise inventories purchased for resale to the public 1.a.i. Manufacturing firm: raw materials/supplies, work-in-process, finished goods 1.a.i.
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Chapter 2 The Balance Sheet - Chapter 2 The Balance Sheet...

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