Balance sheet

Unearned revenues

sometimes called deferred revenues a represent cash received from a customer for goods or services to be provided in a future period. Accrued liabilities represent obligations created when expenses have been incurred but will not be paid until a subsequent reporting period.

financial flexibility

the ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities and needs.

WHAT FINANCIAL STATEMENT SHOWS ACTIVITY at a point in time

the balance sheet presents an organized array of assets, liabilities, and shareholders' equity at a point in time.It is a freeze frame or snapshot of financial position at the end of a particular day marking the end of an accounting period.,

the balance sheet

Also known as the statement of financial conditions...basically tells you how much a company owns (its assets) and how much it owes (its liabilities). The difference is its equity...also commonly called net assets, stockholder's equity, or net worth. The basic accounting equation: assets will always equal the sum of liabilities and equity: Equity + Liabilities = Assets or Assets - Liabilities = Equity.

LIST OF Assets IN ORDER ON BALANCE SHEET

Assets: Current assets**Investments**Property, plant, and equipment**Intangible assets**Other assets

Cash

CURRENT ASSET includes cash on hand and in banks that is available for use in the operations of the business and such items as bank drafts, cashier's checks, and money orders.

noncurrent assets

Typical classifications of noncurrent assets are (1) investments, (2) property, plant, and equipment, and (3) intangible assets.

(assets, liabilities, and shareholders' equity)

each of the three primary elements of the balance sheet

Accounts payable

obligations to suppliers of merchandise or of services purchased on open account, with payment usually due in 30 to 60 days.

SHORT TERM Investments

Investments are classified as current if management has the ability and intent to liquidate the investment in the near term.

WHY IS LAND NOT DEPRECIATED

Land often is listed as a separate item in this classification because it has an unlimited useful life and thus is not depreciated.

the statement of financial position (BALANCE SHEET)

Report a company's financial position on a particular date.

property, plant, and equipment

The common characteristics these assets share are that they are tangible, long-lived, and used in the operations of the business. Property, plant, and equipment, along with intangible assets, often are the primary revenue-generating assets of the business.

Assets

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Liabilities

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

notes receivable

receivables are supported by a formal agreement or note that specifies payment terms

Liquidity

refers to the period of time before an asset is converted to cash or until a liability is paid. useful in assessing a company's ability to pay its current obligations.

Long-term solvency

refers to the riskiness of a company with regard to the amount of liabilities in its capital structure.

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Disclosure notes typically span several pages and either explain or elaborate upon the data presented in the financial statements themselves, or provide information not directly related to any specific item in the statements. Throughout

WHERE DOES SHAREHOLDERS EQUITY COME FROM

Share- holders' equity for a corporation arises primarily from two sources: (1) amounts invested by shareholders in the corporation, and (2) amounts earned by the corporation (on behalf of its shareholders). These are reported as (1) paid-in capital and (2) retained earnings . Retained earnings represents the accumulated net income earned since the inception of the corporation and not (yet) paid to shareholders as dividends.

cash equivalents

investments that have a maturity date of three months or less from the date of purchase

Equity

is the residual interest in the assets of an entity that remains after deducting liabilities.

a company's book value

its assets minus its liabilities as shown in the balance sheet, usually will not directly measure the company's market value (number of shares of common stock outstanding multiplied by the price per share).

NET ASSETS

the residual interest in the assets of an entity that remains after deducting liabilities.

WHEN IS A RECEIVABLE NOT CLASSIFIED AS A CURRENT ASSET

Any receivable, regardless of the source, not expected to be collected within one year or the operating cycle, whichever is longer, is classified as a noncurrent asset, investments.

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Pension plans • Leases • Long-term debt • Investments • Income taxes • Property, plant, and equipment • Employee benefit plans

WHAT INFORMATION DOES THE BALANCE SHEET PROVIDE?

The balance sheet provides information useful for assessing future cash flows, liquidity, and long-term solvency.

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The full-disclosure principle requires that financial statements provide all material relevant information concerning the reporting entity.

WHAT IS THE KEY CLASSIFICATION OF THE BALANCE SHEET

The key classification of assets and liabilities in the balance sheet is the current versus noncurrent distinction.

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The summary of significant accounting policies conveys valuable information about the company's choices from among various alternative accounting methods.

HOW IS PLANT AND PROPERTY REPORTED ON BALANCE SHEET

They are reported at original cost less accumulated depreciation (or depletion for natural resources) to date.

other assets

This classification includes long-term prepaid expenses, called deferred charges, and any noncurrent asset not falling in one of the other classifications. For instance, if a company's non current investments are not material in amount, they might be reported in the other asset classification rather than in a separate investments category.

Current assets

cash and all other assets expected to become cash or be consumed within one year or the operating cycle, whichever is longer.

Shareholders' equity

composed of paid-in capital (invested capital) and retained earnings (earned capital).

Inventories

consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale.

paid-in capital

represented by common stock and additional paid-in capital less treasury stock, which collectively represent cash invested by shareholders in exchange for ownership interests.

a prepaid expense

represents an asset recorded when an expense is paid in advance, creating benefits beyond the current period.

Accounts receivable

result from the sale of goods or services on credit.

limitation of the balance sheet

that it does not portray the market value of the entity as a going concern, nor its liquidation value.

SHAREHOLDERS EQUITY

the residual interest in the assets of an entity that remains after deducting liabilities.

stockholders' equity

the residual interest in the assets of an entity that remains after deducting liabilities.

Noncurrent, or long-term liabilities,

usually are those payable beyond the current year.

Notes payable

written promises to pay cash at some future date (I.O.U.s). Unlike accounts payable, notes usually require the payment of explicit interest in addition to the original obligation amount. Notes maturing in the next year or operating cycle, whichever is longer, will be classified as current liabilities.

The operating cycle

for a typical manufacturing company refers to the period of time necessary to convert cash to raw materials, raw materials to a finished product, the finished product to receivables, and then finally receivables back to cash.

Cash equivalents

frequently include certain negotiable items such as commercial paper, money market funds, and U.S. treasury bills. These are highly liquid investments that can be quickly converted into cash.

Intangible assets

generally represent exclusive rights that a company can use to generate future revenues Patents, copyrights, and franchises are examples.

EXAMPLES OF Property, plant, and equipment

includes land, buildings, equipment, machinery, and furniture, as well as natural resources, such as mineral mines, timber tracts, and oil wells. These various assets usually are reported as a single amount in the balance sheet,

WHEN ARE LONG TERM LIABILITIES CLASSIFIED AS SHORT TERM

Long-term notes, loans, mortgages, and bonds payable usually are reclassified and reported as current liabilities as they become payable within the next year (or operating cycle if that's longer). 4 Likewise, when long-term debt is payable in installments, the installment payable currently is reported as a current liability.

Current liabilities

are expected to be satisfied within one year or the operating cycle, whichever is longer. Current liabilities usually include accounts and notes payable, unearned revenues, accrued liabilities, and the current maturities of long-term debt.

trade receivables

because they arise in the course of a company's normal trade.