Chapter 3 Balance Sheet

Front 1

Three major financial statements

Back 1

balance sheet-statement of financial position
income statement-summarized the reult of the company's income producing activities
statement of cash flows-summarizes the cash inflows and outflows for the accouting period

Front 2

FASB defines revenues and expenses as

Back 2

in terms of changes in assets and liabilties

Front 3

Balance Sheet Purpose

Back 3

assess the company's liquidity financial flex. and operating capability
evaluate the information about its income producing performance during the period
DOES NOT ATTEMPT TO SHOW VALUE OF COMPANY

Front 4

Capital Maintenance

Back 4

TO provide for a return of investment equity must be maintained

Front 5

Definition of Assets

Back 5

Probable future economic benefits obtained or controlled by a company as a reult of past transactions or events.

Front 6

Three characteristics of an asset

Back 6

1. The resource must be able to contribute directly or indirectly to the company's future net cash inflows.
2. The company must be abe to obtain the future benefit and control others access to it.
3. The transaction or event gigint the company the right to or control over the benefit must have occurred.

Front 7

Definition of Liabilties

Back 7

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

Front 8

Charateristics of Liabilty

Back 8

1. Must involve a respnsibilty to another entitiy that will be settles by a sacrifice.
2. The responsibilty must obligate the company in such a way that it has little or no discretion to avoid th future sacrifice.
3. The transaction or other event obligation the company must have occurred.

Front 9

Definition of Equity

Back 9

Residual interest in the assets of a company that remians after deducting its liabilties

Front 10

Limitations of Balance Sheet

Back 10

1. does not include all of its economic resources and obligations
2. many of the amounts that a company reports are based on estimates which are subject to change
3.In periods of inflation the mounts listed on a company's balance sheet do not shlow the purchasing power of its assets and liabilties.

Front 11

Classifications on the Balance sheet

Back 11

1. Assets
current assets
longterm investments
property plant and equipment
intangible assets
other assets
2. Liabilties
current liabilties
long term liabilties
other liabilties
3. Stockholder's equity
contributed capital
capital stock
additional paid in capital
retained earnings
accumulated other comprehensive income

Front 12

Definition of Current assets

Back 12

cash and other assets that are expected tobe converted into cash sold or consumed within one year or the normal operating ccle whichever is longer

Front 13

Current Assets Include five Items

Back 13

1. Cash and cash equivalents
2. temporary investments in marketable securities
3. receivables
4. Inventories
5. prepaid items

Front 14

Definition of cash equivalents

Back 14

risk free securities such as money market fund and treasury bills that will mature in three months or less from the date acquired by the holder.

Front 15

What are temporary investments in marketable securities

Back 15

include debt and equity securities that are classified as trading securities and available for sale securities and that management intends to convert into cash within one year or the normal operating cycle if longer than a year.

Front 16

What do receivables include

Back 16

accounts recievable and note receivable with short term maturity dates. They are listed at their estimated collectable amounts.

Front 17

Guidelines for Reporting assets and liabilties

Back 17

1. Report assets according to their type or expetd function tin the central operations or other activities of the company.
2. Report as separet items assets and liabilties that affect the financial flexibility of the company differently
3. Report assets and liabilties according to the measurement method used to value the items for example assets and liabilities measured at net realizable value versus those measured at current cost.

Front 18

Three Components of Stockholder's equity

Back 18

1. contributed capital
2. retained earnings
3. accumulated other comprehensive income

Front 19

When balance sheet affected by stockholder

Back 19

when atockholder acquire shares directly from the corporation

Front 20

When does a company report a loss from a contigency

Back 20

1.it is probable that a liability has been incurred
2. the amount can be reasonably estimated

Front 21

Subsequent Event

Back 21

one the occurs between the balance sheet date and the date of issuance of the annual report

Front 22

When make adjustments for subsequent events?

Back 22

1.provide addtional evidence concerning conditions that existed on the blance sheet date
2. significantly affects the estimate used in the preparation of the company's financial statements

Front 23

Reporting Techniques

Back 23

report form- vertical format
account form- horizontal fashion

Front 24

Net Realizable Value

Back 24

Amount of cash or its equivalent into which he asets is expected to be converted in due course of business les direct costs necessary to make that conversion.

Front 25

Present Value

Back 25

Present value of future cash inflows into which the asset is expected to be onverted in due course of business less present value of cash outflows necessary to obtain those inflows