ACTG2010 notes - Ch2FINANCIAL STATEMENTS A WINDOW ON AN...

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Ch2 FINANCIAL STATEMENTS: A WINDOW ON AN ENTITY Balance sheet how a company was doing at a specific time - controlled by the entity that will obtain the benefits (entity has right to use asset to make money) - be the result of a transaction or event that has already occurred - measureable future benefit - provide a future benefit to the entity and must be probable that this benefit will be realized by the entity (there is not much uncertainty that the benefit will be enjoyed) -CURRENT used up, sold, converted, within 1 year Type of Asset and What is it? Why is it an Asset? Cash - money Future Benefit -cash can be spent to buy g/s, pay debts and dividends Control -the company can use the cash however it wishes Past Transaction -events in the past, such as the sale of furniture gave rise to the cash Measureable -the amount of cash can be determined by counting Accounts receivable - money owed to the company who received g/s but haven’t paid for them yet Future Benefit -right to receive cash in the future Control -the right to collect cash belongs to the company Past Transaction -accounts recievable arise when goods are sold to customers on credit Measureable -measurability with uncertainty. The exact amount that will be collected isn’t known because some customers may not pay Inventory - merchandise that the company has available for sale to customers Future Benefit -the company can sell the inventory to customers and receive cash Control -the company owns the inventory and can determine how, when, where, and at what price it can be sold Past Transaction -the inventory was purchased in a transaction with the manufacturer Measureable - the cost of the inventory
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can be determined from invoices Property, plant and equipment - includes land, buildings, equipment, furniture and fixtures, vehicles, computer hardware and software, and so on that allow the company to sell its merchandise to customers. The company doesn’t sell these but uses them to operate the business Future Benefit -a building provides a location to operate the business Control -the company can use the building in any way it deems appropriate (sell, renovate, rent to others, etc.). Past Transaction -a building would have been purchased from a previous owner or built to the company’s specifications Measureable -the cost of the building can be determined from purchase documents or from construction cost details. Page 39, 3 (in notes) LIABILITIES -obligations to pay money or provide goods or services to suppliers, lenders, customers, and government -requirement of some economic sacrifice to settle -be the result of a past transaction or economic event Type of Liability and What is it? Why is it a liability Accounts payable and accrued liabilities - amounts owed to suppliers for g/s purchased on credit. Includes amounts owed to inventory suppliers, utilities, property owners, and employees, to name a few.
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