2 current assets typically include cash short term

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(2) Current assets typically include cash, short-term investments, accounts receivable, inventory, and prepaid expenses. b) Long-term investments. c) Property, plant, and equipment. d) Intangible assets. 5. Liability groupings. a) Current liabilities. (1) Current liabilities are liabilities that are expected to be settled through the use of current assets. (2) Current liabilities typically include accounts payable, miscellaneous other payables (such as wages payable, interest payable, and so forth), and current maturities of long-term debts. b) Long-term liabilities. 6. Shareholders’ equity groupings. a) Contributed capital. b) Retained earnings (i.e., earned capital).
Full file at c) Effect of organizational form (i.e., corporate versus partnership) on the equity section. B. Income statement. 1. The income statement explains the change in the company’s net assets (i.e., total assets less total liabilities) during the accounting period due to operating activities. 2. The change in net assets from operating activities is called net income (or loss) and is computed as revenues less expenses. a) Revenues are defined as inflows of assets or outflows of liabilities over a period of time due to a company’s operating activities. b) Expenses are defined as outflows of assets or inflows of liabilities over a period of time due to a company’s operating activities. 3. Since revenues and expenses are defined by the changes in assets and liabilities, every transaction affecting the income statement also affects at least one asset or liability account on the balance sheet. C. Statement of shareholders’ equity. 1. The statement of shareholders’ equity explains the change in the retained earnings and contributed capital balances during the accounting period. 2. The change in the retained earnings balance is due to the company’s net income or loss and distributions to the company’s owners (i.e., dividends). 3. The change in the contributed capital balance is due to capital collected from the sale of equity securities. D. Statement of cash flows. 1. The statement of cash flows explains (i.e., summarizes) the change in the cash balance during the accounting period. a) Cash flows from operating activities. b) Cash flows from investing activities. c) Cash flows from financing activities. III. Relationships among the financial statements. IV. International perspective. V. Review Problem: Bed Bath & Beyond. VI. Ethics in the real world.
Chapter 2 Page 4 VII. Internet research exercise. LECTURE TIPS 1. The illustration of the flow of capital through a business introduces the concept of operating, investing and financing activities. 2. Students should be encouraged to read the text carefully so as to thoroughly understand what each account measures. A useful in-class drill requires students to explain what the amount reported on the balance sheet for a particular account represents.

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