The Classified Balance Sheet. Assets = Liabilities + Owners Equity. The Classified Balance Sheet. The Classified Balance Sheet
The Classified Balance Sheet
The Balance Sheet
The Classified Balance Sheet Current Assets – Cash – Investments – Accounts and notes receivable – In...
The Classified Balance Sheet Current Assets – Cash – Investments – Accounts and notes receivable – Inventory – Prepaid expenses
Reporting – Face value – Fair value – Net realizable value – LCM – Unexpired amount
The Classified Balance Sheet Liabilities – Current liabilities – Long-term liabilities
Reported – Face Value – Present Value
The balance sheet reports the accounting equation:
Assets = Liabilities + Owners’ Equity
The Classified Balance Sheet Noncurrent Assets – Long-term investments – Property, plant, and equipment – Intangible assets
Reported – Fair value or cost – Book value – Book value
The Classified Balance Sheet Stockholders’ Equity – Contributed Capital – Retained earnings
Reported – Par value and paid i in excess of par – Accumulated values
Contingencies
Supplemental Information • • • •
• A contingency is a potential future benefit (gain) or obligation (loss) • Gain G i contingencies ti i are never recognized • Loss contingencies should be classified as probable, reasonably possible or remote.
Loss Contingencies • Accrue loss contingencies that are probable if the amount can be reasonably estimated estimated. • Disclose loss contingencies that are probable if the amount cannot be reasonably estimated. • Disclose loss contingencies that are reasonably possible.
Welcome to Smithfield, Kentucky Home of “Our Best” Corn Meal
Founded Elevation Population Total
1840 1490 550 3880
Usefulness • • • • •
Rates of Return Evaluating Capital Structure Liquidity Solvency Financial Flexibility
Limitations • The balance sheet adds figures which cannot be logically combined bi d
Limitations
Limitations
Yelton’s Jewelry In 1950 buy 100 oz. of gold (in LIFO inventory)
$ 4,500
In 1975 buy real estate for $30,000 (PPE)
$30,000
In 1995 buy a small pickup truck for $10,000 (PPE)
$10,000
TOTAL
• The balance sheet adds figures which cannot be logically combined bi d • The balance sheet relies heavily on estimates
$45,500
Limitations
Limitations
• The balance sheet adds figures which cannot be logically combined bi d • The balance sheet relies heavily on estimates • The balance sheet omits items of value
• The balance sheet adds figures which cannot be logically combined bi d • The balance sheet relies heavily on estimates
The Balance Sheet
Cash Flows Cash flows are divided into three categories • Financing activities • Investing Activities • Operating activities
Financing Activities • Business organizations receive their resources primarily from creditors and owners. • Cash flow from financing activities comes from any transaction, other than the payment of interest, between an organization and its creditors or its owners.
Investing Activities
Operating Activities
• The acquisition or disposition of resources to be used to produce profits are called investing activities activities. • Cash flow from investing activities comes from any transaction used to acquire or dispose of long term assets.
• The use of resources for the purpose of producing profits is called operating activities. activities • Cash flow from operating activities comes from any transaction used in the determination of net income.
The Cash Flow Statement
The Input/Output Formula
• The cash flow statement has three sections corresponding to the categories of cash flows • Preparation of the cash flow statement is by one of two methods: The Direct Method The Indirect Method • The entire difference between these two methods occurs in the cash from operations section
All accounts have an input/output formula which may be stated generically i ll as follows: f ll Beginning Balance + Things added - Things deducted = Ending balance
The Input/Output Formula
The Indirect Method
• In accounting problem solving the task is to know the “things” added and deducted • You will generally know three of the four elements and must solve for the fourth • In cash flow analysis we seek items which simultaneously affect cash
• Analyze all long term asset, long term liability and owners’ equity accounts utilizing ili i the h input i / output formula • Adjust net income to cash from operations
Adjustments for the Indirect Method Net Income + Depreciation - Increases in Current Assets + Decreases in Current Assets + Increases in Current Liabilities - Decreases in Current Liabilities = Cash Flow from Operating Activities
