CFA_L1_Assignment_94_Lesson 1: Balance Sheet: Components and Format

Liabilities are...

a company's obligations from previous transactions that are expected to result in outflows of economic benefits in the future.

Which of the following is least likely a format for the balance sheet? a. Report format b. Multi‐step format c. Account format

b. multi-step format A balance sheet may either be presented in an account format or a report format. The multi‐step format may be used to prepare an income statement.

Liquidity-based presentation: ...

IFRS allows the preparation of a balance sheet using a liquidity-based presentation format (rather than a current/non-current format), if such a format provides more reliable and relevant information. In a liquidity-based presentation, all assets and liabilities are broadly presented in order of liquidity. This format is typically used by banks.

An accrued expense liability is most likely recognized when: 1. An expense is recognized before cash payment. 2. Cash is paid prior to expense recognition. 3. Revenue is recognized prior to the receipt of cash.

1. An expense is recognized before cash payment. An accrued expense liability is recognized when an expense is recognized prior to cash payment.

LOS 26b: Describe the uses and limitations of the balance sheet in financial analysis. Vol 3, p 213

1. Under current accounting standards, measurement bases of different assets and liabilities may vary considerably. For example, some assets and liabilities may be measured at historical cost, while others may be measured at current value. These differences can have a significant impact on reported figures. 2. The value of items reported on the balance sheet reflects their value at the end of the reporting period, which may not necessarily remain "current" at a later date. 3. The balance sheet does not include qualitative factors (e.g., reputation, management skills, etc.) that have an important impact on the company's future cash-generating ability and therefore, its overall value.

For a company, _______ refers to the company's ability to meet short-term cash requirements.

1. liquidity

For an individual asset, ______ refers to how quickly the asset can be converted to cash at a price close to its fair market value.

1. liquidity

Balance sheets may be presented in any of the following formats:

1. report formats 2. account format 3. classified balance sheet 4. liquidity-based presentation

Account format: ...

Assets are presented on the left-hand side of the balance sheet, with liabilities and equity on the right-hand side.

assets

Assets are resources under a company's control as a result of past transactions that are expected to generate future economic benefits for the company.

Report format: ...

Assets, liabilities, and equity are presented in a single column. This format is the most commonly used balance sheet presentation format.

Classified balance sheet: ...

Different types of assets and liabilities are grouped into subcategories to give a more effective overview of the company's financial position. Classifications typically group assets and liabilities into their current and non-current portions.

If a company pays cash before it recognizes the associated expense it results in a(n): a. Unearned revenue liability. b. Accounts receivable asset. c. Prepaid expense asset.

c. Prepaid expense asset. If a company pays cash before it recognizes the associated revenue it results in a prepaid expense asset.

Which of the following balance sheet presentation formats reports assets on the left‐hand side, and liabilities and equity on the right‐hand side? Report format Classified balance sheet Account format

c. account format The account format presents assets on the left, and liabilities and equity on the right‐hand side of the balance sheet.

Equity represents the ...

residual claim of shareholders on a company's assets after deducting all liabilities.

The balance sheet (also called the statement of financial position or statement of financial condition) provides users with information regarding a company's assets, liabilities, and equity at a...

specific point in time.