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201Lec02.PPTX

More
More on on Financial
Financial statements statements Chapter
Chapter
A BALANCE SHEET: i - changes constantly

(every time an

activity occurs)

ii - shows assets, liabilities and equities as of a specific date. Prepared at least once per year. iii - uses original cost (historical cost principle) for most items.
Current Fair Market Value (FMV) used for some assets like marketable securities since daily price is readily available.

iv - Only shows items that can be expressed in monetary units ($) Which assets or liabilities can’t be expressed in $$$?

1

The
The Classified
Classified Balance
Balance Sheet
Sheet
Generally contains the following standard classifications:

Current Assets
Long-Term Investments
Property, Plant, and Equipment
Intangible Assets
Current Liabilities
Long-Term Liabilities
Stockholders' Equity

A
S
S
E
T
S

LIABILITIES

2

Current
Current Assets
Assets
Assets that are expected to be converted to cash or used in the business within a short period of time, usually one year.
Current assets are listed in order of liquidity
(convert them to cash).
Examples:







Cash
Short-term investments
Receivables
Inventories
Supplies on hand
Prepaid expenses
3

CHUCK
CORPORATION
Assets
That A

Company
Balance Sheet
Depreciates...
December
31, 2013
Subtotals are usually made for current items:

Assets
Current Assets:
Cash
Accounts receivable
Total Current Assets
Long-term investments:
Stocks
Real estate
Property, plant & equipment:
Equipment
Less: Accumulated Depreciation
Intangible assets
Patents
Total assets

$ 2,000
4,000
$ 6,000
5,000
90,000

95,000

24,000
- 8,000

16,000
50,000
$167,000

4

Long-Term
Long-Term Investments
Investments
Assets whose conversion to cash is not expected within one year.
Assets not intended for use within the business.
Examples:
 Investments of stocks, notes and bonds of other corporations.  Land held for speculation
 Rental buildings

5

Property,
Property, Plant
Plant &
& Equipment
Equipment (PP&E)
(PP&E)
Assets with relatively long useful lives.
Assets used in operating the business.
Examples:





land buildings machinery delivery equipment

 furniture and fixtures

6

PP&E recording rules . . .
Record and keep on balance sheet the COST of the asset (NOT value).
Expense a portion of asset cost over a number of years.
Depreciation expense is recorded each year on most long lived assets used in a business. Accumulated Depreciation appears on the balance sheet as a negative adjustment to PP&E
It is the total amount of depreciation expense taken over the life of the asset.
7

CHUCK
CORPORATION
Assets
That A

Company
Balance Sheet
Depreciates...
December
31, 2013
PP&E is shown at cost less accumulated
Assets
depreciation
Current Assets:
Cash
Accounts receivable
Total Current Assets
Long-term investments:
Stocks
Real estate
Property, plant & equipment:
Equipment
Less: Accumulated Depreciation
Intangible assets
Patents
Total assets

$ 2,000
4,000
$ 6,000
5,000
90,000

95,000

24,000
- 8,000

16,000
50,000
$167,000

8

Intangible
Intangible Assets
Assets
Like PP&E, usually have long useful life
Have no physical substance
Examples:






patents copyrights trademarks or trade names
Franchise
Goodwill

9

Current
Current Liabilities
Liabilities
Obligations that are supposed to be paid within the coming year.
Examples:
notes payable accounts payable wages payable interest payable taxes payable current maturities of long-term debt payable
 Utilities payable
 Unearned revenues







10

Long-term
Long-term (non-current)
(non-current) Liabilities
Liabilities

Debts expected to be paid after one year
Examples…





bonds payable mortgages payable long-term notes payable obligations under employee pension plans

11

Stockholder’s
Stockholder’s Equity
Equity
Common stock - investments in the business by the stockholders
Retained earnings - earnings kept for use in the business 12

Ratio Analysis...
Uses relationships on statements to