Chapter 3 NEW - The Balance Sheet Assets Liabilities and...

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Accounting 123/The Balance Sheet 1 The Balance Sheet Assets, Liabilities and Equity
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Accounting 123/The Balance Sheet 2 Usefulness and Purpose of the Balance Sheet Provides information about an entity’s assets, liabilities and equity as of a specific date. Facilitates the evaluation of an entity’s liquidity , solvency and financial flexibility . Aids in assessing risk and predicting future cash flows .
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Accounting 123/The Balance Sheet 3 Limitations of the Balance Sheet Current value is not reflected Estimates and judgments must be utilized Many items of financial value are omitted
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Accounting 123/The Balance Sheet 4 The Accounting Identity Also known as ‘The Balance Sheet Equation’ Assets = Liabilities + Owners’ Equity
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Accounting 123/The Balance Sheet 5 Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities as a result of past transactions or events. Shareholders’ Equity is the residual interest in the assets of an entity that remains after deducting liabilities.
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Accounting 123/The Balance Sheet 6 Major Sub-classifications in the Balance Sheet Current Assets Resources that are expected to be turned into cash, sold, or consumed within a year or the operating cycle, whichever is longer . Presented in order of liquidity. Typically: Cash Short-term investments Receivables Inventories Prepaid expenses
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Accounting 123/The Balance Sheet 7 Major Sub-classifications in
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Chapter 3 NEW - The Balance Sheet Assets Liabilities and...

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