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pre class balance sheet

pre class balance sheet - 15.501/15.516 Financial Accoun2ng...

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15.501/15.516’–’Financial’Accoun2ng’ Spring’±014’ Session’± Professor’ João’Granja’ MIT’Sloan’School’of’Management
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Recap’of’last’class’ • Financial’statements’are’prepared’in’accordance’with’GAAP,’ which’is’set’by’FASB.’ • Financial’accoun2ng’is’the’process’of’iden2fying,’recording,’ and’summarizing’economic’events/transac2ons.’ • There’are’four’main’±nancial’statements:’the’balance’sheet,’ income’statement,’statement’of’cash’flows,’and’statement’of’ stockholders²’equity’ • All’four’±nancial’statements’are’linked’ • Assets=Liabili2es+’Equity!!!!’ ³’
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Plan’for’today’ • What’is’the’balance’sheet?’ • Iden2fy’diFerent’accounts’in’a’balance’sheet’ • Analyze’the’eFects’of’business’transac2ons’on’the’balance’ sheet’equa2on’ • Whose’balance’sheet’is’it’anyway?’ 3’
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Balance’Sheet’Overview’ • Snapshot’of’what’you’have’and’what’you’owe’at’a’par2cular’ point’in’2me.’ • What’you’have’are’called’assets’and’what’you’owe’are’called’ liabili2es.’The’diFerence’is’owner±s’equity.’ • Types’of’assets/liabili2es’a’company’has’depends’on’nature’of’ business’and’how’it’is’²nanced.’ • Balance’sheets’always’balance.’ 4’
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Balance’sheet’equa2on/Accoun2ng’iden2ty’ What’you’have’=’What’you’owe’ Assets’ ’ ’ ’=’Liabili2es’+’Owners±’Equity’ ’ ’=’Contributed’Capital’+’Ret.’Earnings’ 5’
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What’is’an’asset?’ • Assets’ Ø A’resource’that’will’provide’probable’future’economic’beneFts’to’the’ company’–’the’ability’to’generate’future’cash’inflows’or’reduce’future’ cash’ou^lows.’ Characteris2cs’required’for’an’asset’to’be’placed’( capitalized )’on’the’ balance’sheet:’ 1. The’asset’must’be’owned’or’controlled’by’the’company’ -Legal’2tle’or’unrestricted’right’to’use’ -Cost’to’acquire’asset’has’been’incurred’ -Executory’contracts’are’not’yet’assets’(if’nothing’has’been’exchanged)’ ±. The’asset’must’possess’expected’future’beneFts’ that’can’be’ measured ’ -Expected’future’cash’receipts’ ’ -Know,’with’some’certainty,’what’the’future’beneFts’will’be’ 6’
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Should’we’recognize’an’asset?’ The’company’spends’$10M’to’develop’a’new’sof’drink.’No’commercially’Feasible’product’ has’yet’evolved,’but’the’company’hopes’that’such’a’product’will’evolve’in’the’near’Future.’ The’company’pays’$2M’to’acquire’a’patent’For’a’new’sof’drink’From’another’company.’
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