Chapter 5: Balance Sheet Statement of Cash Flows

Document Sample
Chapter 5: Balance Sheet Statement of Cash Flows Powered By Docstoc
					The Balance Sheet and
Financial Disclosures


    Sid Glandon, DBA, CPA
Associate Professor of Accounting
          Balance Sheet
   Usefulness
    – Evaluating capital structure
    – Computing rates of return
    – Analyzing liquidity
    – Analyzing solvency
    – Analyzing financial flexibility
          Balance Sheet
   Limitations
    – Historical cost
    – Estimates are used
    – Items must be objectively determined
    – Does not report off-balance sheet
      financing
    Balance Sheet Elements
   Assets
    – Probable future economic benefits as a result of
      past transactions or events
   Liabilities
    – Probable future sacrifices of economic benefits
      as a result of past transactions or events
   Equity
    – Residual interest in the net assets
Accounting Equation
ASSETS   = LIABILITIES +   EQUITY
Classification of Assets
   Current assets
    –   Cash and cash equivalents
    –   Short-term investments
    –   Receivables
    –   Inventories
    –   Prepaid expenses
   Investments (long-term)
   Property, plant, and equipment
   Intangible assets
   Other assets
      Classification of
    Liabilities and Equity
   Current liabilities
    –   Accounts payables
    –   Notes payable
    –   Unearned revenue
    –   Accrued liabilities
    –   Current portion of long-term debt
   Long-term liabilities
   Owners’ equity
    – Capital stock
    – Additional paid-in capital
    – Retained earnings
    Notes to the
Financial Statements
– Summary of significant accounting
  policies
   Cash  equivalents
   Inventories

   Depreciation

   Revenue recognition

– Subsequent events
– Related party transactions
– Contingent liabilities
           Auditors’ Report
   Unqualified opinion (3 paragraphs)
    – fourth paragraph
          lack of consistency
          uncertainty
          emphasis of a matter
   Qualified opinion
    – exceptions
   Adverse opinion
    – not fairly presented
   Disclaimer of opinion
    – scope limitations
              Risk Analysis
   Balance sheet ratios
    – Liquidity ratios
        Current ratio
        Acid-test ratio

    – Financing ratios
        Debtto equity ratio
        Times interest earned ratio
       Liquidity Ratios
                         Current assets
Current ratio     =
                        Current liabilities

                          Quick assets
Acid-test ratio   =
                        Current liabilities

      Quick assets:
       Cash
       Investments (short-term)
       Accounts receivable
             Financing Ratios
                                           Total liabilities
   Debt to equity ratio    =
                                        Stockholders' equity

                                Net income + Interest expense + Taxes
Times interest earned ratio =
                                          Interest expense
                             Company Name
                              Balance Sheet
                                  Date

                                ASSETS
Current assets:
 Cash                                                  XXX
 Accounts receivable                                   XXX
 Inventory                                             XXX
 Prepaid costs                                         XXX
 Total current assets                                  XXX
Property, plant and equipment (net)                    XXX
Intangible assets (net)                                XXX
   Total Assets                                        XXX

                 LIABILITIES AND SHAREHOLDER' EQUITY
Current liabilities:
 Accounts payable                                      XXX
 Accrued liabilities                                   XXX
 Current portion of long-term debt                     XXX
 Total current liabilities                             XXX
Long-term debt                                         XXX
 Total debt                                            XXX
Shareholders' equity:
 Common stock                                          XXX
 Additional paid in capital                            XXX
 Retained earnings                                     XXX
 Total shareholders' equity                            XXX
  Total liabilities and shareholders' equity           XXX

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:14
posted:8/8/2012
language:English
pages:13