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ch05 - Learning Objectives Learning Objectives 1 2 3...

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5-1 1. Explain the uses and limitations of a balance sheet. 2. Identify the major classifications of the balance sheet. 3. Prepare a classified balance sheet using the report and account formats. 4. Indicate the purpose of the statement of cash flows. 5. Identify the content of the statement of cash flows. 6. Prepare a statement of cash flows. 7. Understand the usefulness of the statement of cash flows. 8. Determine which balance sheet information requires supplemental disclosure. 9. Describe the major disclosure techniques for the balance sheet. Learning Objectives Learning Objectives Learning Objectives Learning Objectives
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5-2 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 Balance Sheet Balance Sheet Balance Sheet LO 1 Explain the uses and limitations of a balance sheet.
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5-3 Computing rates of return on assets or equity. Evaluating the capital structure. Assess risk and future cash flows. Analyze the company’s: Liquidity Solvency Financial flexibility Balance Sheet Balance Sheet Balance Sheet Balance Sheet Usefulness of the Balance Sheet LO 1 Explain the uses and limitations of a balance sheet.
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5-4 Most assets and liabilities are reported at historical cost. Use of judgments and estimates. Some items of financial value are omitted. Limitations of the Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet LO 1 Explain the uses and limitations of a balance sheet.
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5-5 Classification LO 2 Identify the major classifications of the balance sheet. Balance Sheet Balance Sheet Balance Sheet Balance Sheet
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5-6 Illustration 5-1 In practice you usually see little departure from these major subdivisions. Balance Sheet Balance Sheet Balance Sheet Balance Sheet Classification LO 2 Identify the major classifications of the balance sheet.
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5-7 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 Classification in the Balance Sheet Classification in the Balance Sheet Classification in the Balance Sheet Illustration 5-2 LO 2 Identify the major classifications of the balance sheet.
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5-8 Generally any monies available “on demand.” Cash equivalents - short-term highly liquid investments that mature within three months or less. Restrictions or commitments must be disclosed. Cash LO 2 Illustration 5-3 Balance Sheet – “Current Assets” Balance Sheet – “Current Assets” Balance Sheet – “Current Assets” Balance Sheet – “Current Assets”
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5-9 Portfolios 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
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