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10 Cards in this Set
- Front
- Back
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3 Usefulness's of a balance sheet |
1.Liquidity- how quickly assets covert to cash/How quickly do short term liabilities need to be paid 2.Solvency- ability of a company to pay its debt as it matures 3.Financial flexibility |
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Effects of low/high liquidity and solvency to financial flexibility |
Low solvency and liquidity- low financial flexibility- higher risk High solvency and liquidity-high financial flex-lower risk |
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Limitations to balance sheet |
Most assets/liabilites reported at historical cost lack relevance for example land Judgements and estimates Omits items that are of financial value -human capital, customer base, reputation |
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5 assets classified in the balance sheet |
current assets
long term investments property, plant and equip. intangible assets other assets |
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Liabilities and owners equity classification on the balance sheet |
current liabilities, long term debt and owners (stockholders) equity |
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Why does the classification of the balance sheet exist? |
Report and classify individual items in sufficient detail to permit users to timing, amounts and uncertainty of future cash flows |
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Is cash a current asset? |
not if it is restricted in some way, for example cash restricted as collateral on debt |
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When are items considered a current asset? |
When a company expects to realize them in one year, it is considered a current asset |
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What is a trading security? |
-short term investment -current assets always -debt and equity securities bought and held primary for sale in the near future |
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Held- to- maturity debt investments |
-Short term investment -current/ non current depending -debt securities that a company as a positive intent and ability to hold to maturity |
