100%(17)17 out of 17 people found this document helpful
This preview shows page 10 - 12 out of 97 pages.
(3) Other equity, such as treasury stock (a subtraction) oWhen a company buys back its own shares, accountants call the repurchased shares treasury stock.oTreasury shares can be retired, or they can be retained and reissued later.oTreasury stock is usually shown on the balance sheet as a subtraction from total stockholders’ equity.Can you figure out why?Treasury Stock is not real stock. The company really holds nothing. oIf it used $50,000 of cash to buy back $50,000 of its own shares, the cash is gone. oIf the cash is gone, either liabilities or equity must go down to balance. oTherefore, the $50,000 would be taken out of equity (not added to equity). Accumulated other comprehensive incomeNotes to the Financial Statements:oSummary of significant accounting policies.oAdditional information to support summary totals found on the financial statements, usually the balance sheet.oInformation about items that are not reported on the basic statements because the item fails to meet recognition criteria but are still important for users in their decision making.oContingencies deemed possible(e.g. lawsuits). If it were deemed probable, it would be record on thefinancial statements, not merely disclosed.Subsequent events:oThe SEC requires large publicly traded companies to file their financial statements within 60 days of fiscal year-end.oBusiness continues during this “subsequent period” and events could take place that have a materialimpact upon the firm’s financial statements for the preceding year.oThese events are referred to in the accounting literature as subsequent events.oDepending on the nature of the subsequent event, the financial statements may need to be adjusted or a disclosure may need to be made. oE.g., a major customer owing the company $1,000,000 files for bankruptcy on January 10. Because of the bankruptcy, the $1,000,000 may no longer be collectible. Although the filing of the bankruptcy petition occurred on January 10, the facts likely existed before the end of the year and the receivablemay need to be adjusted.oDomestic vs. Foreign Balance SheetooDomestic CorpoForeign CorpoAssetsCurrent assets are listed beforenoncurrent assets and in the order of their liquidity.Property, plant, and equipment and intangibles are generally listed first.oLiabilitiesCurrent liabilities are listed before noncurrent liabilities. Current assets and current liabilities are listed together.
The difference between the twois referred to as “net current assets” or “net working capital.”The Income Statement:oThe income statement reports the results of a company’s operations—the sale of goods and services and the associated cost of operating the company—for a given period. oThe long-term survival of a company depends on its ability to produce net income by earning revenues in excess of expenses.