Balance Sheet and Statement of Cash Flows Chapter 5 Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield.

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  • Balance Sheet and Statement of Cash FlowsChapter 5Intermediate Accounting12th EditionKieso, Weygandt, and Warfield

  • Learning ObjectivesExplain the uses and limitations of a balance sheet.Identify the major classifications of the balance sheet.Prepare a classified balance sheet using the report and account formats.Determine which balance sheet information requires supplemental disclosure.Describe the major disclosure techniques for the balance sheet.Indicate the purpose of the statement of cash flows.Identify the content of the statement of cash flows.Prepare a statement of cash flows.Understand the usefulness of the statement of cash flows.

  • Balance SheetStatement of Cash FlowsPurposeContent and formatPreparationUsefulnessBalance Sheet and Statement of Cash FlowsUsefulnessLimitationsClassificationAdditional information reportedTechniques of disclosure

  • Evaluating the capital structure.Assess risk and future cash flows.Analyze the companys: Liquidity, Solvency, and Financial flexibility (A measure of adaptability of the business. It indicates the ability of an entity to take effective actions to alter amounts and timing of cashflow so that it can respond to unexpected needs and opportunities. Financial flexibility comes from quick access to cash.Balance SheetUsefulness of the Balance Sheet.

  • Most assets and liabilities are reported at historical cost.Use of judgments and estimates.Many items of financial value are omitted.Limitations of the Balance SheetLO 1 Understand the uses and limitations of an income statement.Balance Sheet

  • Three General Classifications Assets, Liabilities, and Stockholders EquityCompanies further divide these classifications:Classification in the Balance SheetLO 2 Identify the major classifications of the balance sheet.Balance SheetIllustration 5-1 Balance Sheet Classification

  • Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer. Current AssetsLO 2 Identify the major classifications of the balance sheet.Balance SheetIllustration 5-2 Accounts and basis of valuation

  • ReviewThe correct order to present current assets is a. Cash, accounts receivable, prepaid items, inventories. b. Cash, accounts receivable, inventories, prepaid items. c. Cash, inventories, accounts receivable, prepaid items. d. Cash, inventories, prepaid items, accounts receivable.LO 8 Explain how to report other comprehensive income.Balance Sheet

  • Generally any monies available on demand.Cash equivalents are short-term highly liquid investments that will mature within three months or less.Any restrictions or commitments must be disclosed. CashLO 2 Identify the major classifications of the balance sheet.Balance Sheet Current AssetsIllustration 5-3

  • PortfoliosShort-Term InvestmentsLO 2 Identify the major classifications of the balance sheet.TypeValuationClassificationHeld-to-MaturityDebtAmortized CostCurrent or NoncurrentTradingDebt or EquityFair ValueCurrentAvailable- for-SaleDebt or EquityFair ValueCurrent or NoncurrentBalance Sheet Current Assets

  • Claims held against customers and others for money, goods, or services.Accounts receivable oral promisesNotes receivable written promisesMajor categories of receivables should be shown in the balance sheet or the related notes.ReceivablesLO 2 Identify the major classifications of the balance sheet.Balance Sheet Current Assets

  • Accounts Receivable Presentation OptionsLO 2 Identify the major classifications of the balance sheet.Balance Sheet Current AssetsCurrent Assets:Cash $ 346Accounts receivable500 Less allowance for doubtful accounts 25 475Inventory 812Total current assets $1,633Current Assets:Cash $ 346Accounts receivable, net of $25 allowance475 Inventory 812Total current assets $1,63312

  • Company discloses: basis of valuation (e.g., lower-of-cost-or-market) andthe method of pricing (e.g., FIFO or LIFO). InventoriesLO 2 Identify the major classifications of the balance sheet.Balance Sheet Current Assets

  • Balance Sheet Current AssetsPayment of cash, that is recorded as an asset because service or benefit will be received in the future.insurancesuppliesadvertisingCash PaymentExpense RecordedBEFORErentmaintenance on equipmentPrepayments often occur in regard to:Prepaid ExpensesLO 2 Identify the major classifications of the balance sheet.

  • Generally consists of four types: Securities Fixed assetsSpecial fundsNonconsolidated subsidiaries or affiliated companies.Long-Term InvestmentsLO 2 Identify the major classifications of the balance sheet.Balance Sheet Noncurrent Assets

  • Long-Term Investments Securities LO 2 Identify the major classifications of the balance sheet.Balance Sheet Noncurrent Assetsbonds, stock, and long-term notesFor marketable securities, managements intent determines current or noncurrent classification.

    Chart of Accounts

    Chart of Accounts

    Acct. No.Account

    100Cash

    105Accounts receivable

    110Inventory

    130Building

    200Accounts payable

    220Note payable

    300Common stock

    330Retained earnings

    400Sales

    500Cost of goods sold

    General Ledger

    General Journal

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    10Building130150,000

    Note payable220150,000

    15Inventory11060,000

    Accounts payable20060,000

    20Accounts receivable10575,000

    Sales40075,000

    20Cost of goods sold50030,000

    Inventory11030,000

    29Cash10040,000

    Accounts receivable10540,000

    General Ledger

    CashAcct. No. 100

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale of common stockGJ100,000100,000

    20GJ40,000140,000

    Accounts ReceivableAcct. No. 105

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ75,00075,000

    GJ40,00035,000

    InventoryAcct. No. 110

    DateExplanationRef.DebitCreditBalance

    Jan.15GJ60,00060,000

    20GJ30,00030,000

    BuildingAcct. No. 130

    DateExplanationRef.DebitCreditBalance

    Jan.10GJ150,000150,000

    Accounts payableAcct. No. 200

    DateExplanationRef.DebitCreditBalance

    Jan.15GJ60,000(60,000)

    Notes payableAcct. No. 220

    DateExplanationRef.DebitCreditBalance

    Jan.10GJ150,000(150,000)

    Common stockAcct. No. 300

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale for cashGJ100,000(100,000)

    Retained EarningsAcct. No. 330

    DateExplanationRef.DebitCreditBalance

    0.0

    SalesAcct. No. 400

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ75,000(75,000)

    Cost of Goods SoldAcct. No. 500

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ30,00030,000

    Trial Balance

    Investments:

    Invesment in ABC bonds321,657

    Investment in UC Inc.253,980

    Notes receivable150,000

    Land held for speculation550,000

    Sinking fund225,000

    Pension fund653,798

    Cash surrender value84,321

    Investment in Uncon. Sub.457,836

    Total investments2,696,592

    Property, Plant, and Equip.

    Building1,375,778

    Land975,000

    Journal Entry

    No.AccountDebitCredit

    110,000

    Class Solution

    Assets=Liabilities+Equity

    AccountsAccountsNotesCommonRetainedCost of

    CashReceivableInventoryBuildingPayablePayableStockEarningsSalesGoods Sold

    1.100,000100,000

    2.150,000150,000

    3.60,00060,000

    4.75,000(30,000)75,00030,000

    540,000(40,000)

    140,00035,00030,000150,000=60,000150,000+100,0000.075,00030,0000.0

    DebitCreditCashAccounts ReceivableCommon Stock

    1.Cash100,000100,00075,00040,000100,000

    Common stock100,00040,000

    2.Building150,000140,0000.035,0000.00.0100,000

    Notes payable150,000

    3.Inventory60,000BuildingAccounts PayableSales

    Accounts payable60,000150,00060,00075,000

    4.Accounts receivable75,000

    Sales75,000150,0000.00.060,0000.075,000

    Cost of goods sold30,000Notes PayableInventoryCost of Goods Sold

    Inventory30,000150,00060,00030,00030,000

    5Cash40,000

    Accounts receivable40,0000.0150,00030,0000.030,0000.0

    Class

    Assets=Liabilities+Equity

    AccountsAccountsNotesCommonRetainedCost of

    CashReceivableInventoryBuildingPayablePayableStockEarningsSalesGoods Sold

    1.

    2.

    3.

    4.

    5

    0.00.00.00.0=0.00.0+0.00.00.00.00.0

    DebitCreditCashCommon stockAccounts receivable

    1.

    2.0.00.00.00.00.00.0

    3.BuildingNotes payableSales

    4.

    0.00.00.00.00.00.0

    InventoryAccounts payableCost of goods sold

    5

    0.00.00.00.00.00.0

    6Retained earningsDebitCredit

    CashA

    Accounts receivableA

    InventoryA

    0.00.0BuildingA

    Accounts payableL

    Notes payableL

    Common stockE

    Retained earningsE

    SalesR

    Cost of goods soldE

    0.00.0

    Accounting Equation

    Assets=Liabilities+Equity

    T-Accounts

    Cash

    0.00.0

    Inventory

    0.00.0

    Journal slide

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    10Building130150,000

    Note payable220150,000

    Posting slide

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    CashAcct. No. 100

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale of common stockGJ100,000100,000

    Chart of Accounts

    Chart of Accounts

    Acct. No.Account

    100Cash

    105Accounts receivable

    110Inventory

    130Building

    200Accounts payable

    220Note payable

    300Common stock

    330Retained earnings

    400Sales

    500Cost of goods sold

    General Ledger

    General Journal

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    10Building130150,000

    Note payable220150,000

    15Inventory11060,000

    Accounts payable20060,000

    20Accounts receivable10575,000

    Sales40075,000

    20Cost of goods sold50030,000

    Inventory11030,000

    29Cash10040,000

    Accounts receivable10540,000

    General Ledger

    CashAcct. No. 100

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale of common stockGJ100,000100,000

    20GJ40,000140,000

    Accounts ReceivableAcct. No. 105

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ75,00075,000

    GJ40,00035,000

    InventoryAcct. No. 110

    DateExplanationRef.DebitCreditBalance

    Jan.15GJ60,00060,000

    20GJ30,00030,000

    BuildingAcct. No. 130

    DateExplanationRef.DebitCreditBalance

    Jan.10GJ150,000150,000

    Accounts payableAcct. No. 200

    DateExplanationRef.DebitCreditBalance

    Jan.15GJ60,000(60,000)

    Notes payableAcct. No. 220

    DateExplanationRef.DebitCreditBalance

    Jan.10GJ150,000(150,000)

    Common stockAcct. No. 300

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale for cashGJ100,000(100,000)

    Retained EarningsAcct. No. 330

    DateExplanationRef.DebitCreditBalance

    0.0

    SalesAcct. No. 400

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ75,000(75,000)

    Cost of Goods SoldAcct. No. 500

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ30,00030,000

    Trial Balance

    Balance Sheet (in thousands)

    Current assets

    Cash$285,000

    Accounts receivable149,000

    Journal Entry

    No.AccountDebitCredit

    110,000

    Class Solution

    Assets=Liabilities+Equity

    AccountsAccountsNotesCommonRetainedCost of

    CashReceivableInventoryBuildingPayablePayableStockEarningsSalesGoods Sold

    1.100,000100,000

    2.150,000150,000

    3.60,00060,000

    4.75,000(30,000)75,00030,000

    540,000(40,000)

    140,00035,00030,000150,000=60,000150,000+100,0000.075,00030,0000.0

    DebitCreditCashAccounts ReceivableCommon Stock

    1.Cash100,000100,00075,00040,000100,000

    Common stock100,00040,000

    2.Building150,000140,0000.035,0000.00.0100,000

    Notes payable150,000

    3.Inventory60,000BuildingAccounts PayableSales

    Accounts payable60,000150,00060,00075,000

    4.Accounts receivable75,000

    Sales75,000150,0000.00.060,0000.075,000

    Cost of goods sold30,000Notes PayableInventoryCost of Goods Sold

    Inventory30,000150,00060,00030,00030,000

    5Cash40,000

    Accounts receivable40,0000.0150,00030,0000.030,0000.0

    Class

    Assets=Liabilities+Equity

    AccountsAccountsNotesCommonRetainedCost of

    CashReceivableInventoryBuildingPayablePayableStockEarningsSalesGoods Sold

    1.

    2.

    3.

    4.

    5

    0.00.00.00.0=0.00.0+0.00.00.00.00.0

    DebitCreditCashCommon stockAccounts receivable

    1.

    2.0.00.00.00.00.00.0

    3.BuildingNotes payableSales

    4.

    0.00.00.00.00.00.0

    InventoryAccounts payableCost of goods sold

    5

    0.00.00.00.00.00.0

    6Retained earningsDebitCredit

    CashA

    Accounts receivableA

    InventoryA

    0.00.0BuildingA

    Accounts payableL

    Notes payableL

    Common stockE

    Retained earningsE

    SalesR

    Cost of goods soldE

    0.00.0

    Accounting Equation

    Assets=Liabilities+Equity

    T-Accounts

    Cash

    0.00.0

    Inventory

    0.00.0

    Journal slide

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    10Building130150,000

    Note payable220150,000

    Posting slide

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    CashAcct. No. 100

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale of common stockGJ100,000100,000

  • Fixed Assets LO 2 Identify the major classifications of the balance sheet.Balance Sheet Noncurrent AssetsLand held for speculationLong-Term Investments

    Chart of Accounts

    Chart of Accounts

    Acct. No.Account

    100Cash

    105Accounts receivable

    110Inventory

    130Building

    200Accounts payable

    220Note payable

    300Common stock

    330Retained earnings

    400Sales

    500Cost of goods sold

    General Ledger

    General Journal

    DateAccount TitleRef.DebitCredit

    Jan.3Cash100100,000

    Common stock300100,000

    10Building130150,000

    Note payable220150,000

    15Inventory11060,000

    Accounts payable20060,000

    20Accounts receivable10575,000

    Sales40075,000

    20Cost of goods sold50030,000

    Inventory11030,000

    29Cash10040,000

    Accounts receivable10540,000

    General Ledger

    CashAcct. No. 100

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale of common stockGJ100,000100,000

    20GJ40,000140,000

    Accounts ReceivableAcct. No. 105

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ75,00075,000

    GJ40,00035,000

    InventoryAcct. No. 110

    DateExplanationRef.DebitCreditBalance

    Jan.15GJ60,00060,000

    20GJ30,00030,000

    BuildingAcct. No. 130

    DateExplanationRef.DebitCreditBalance

    Jan.10GJ150,000150,000

    Accounts payableAcct. No. 200

    DateExplanationRef.DebitCreditBalance

    Jan.15GJ60,000(60,000)

    Notes payableAcct. No. 220

    DateExplanationRef.DebitCreditBalance

    Jan.10GJ150,000(150,000)

    Common stockAcct. No. 300

    DateExplanationRef.DebitCreditBalance

    Jan.3Sale for cashGJ100,000(100,000)

    Retained EarningsAcct. No. 330

    DateExplanationRef.DebitCreditBalance

    0.0

    SalesAcct. No. 400

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ75,000(75,000)

    Cost of Goods SoldAcct. No. 500

    DateExplanationRef.DebitCreditBalance

    Jan.20GJ30,00030,000

    Trial Balance

    Investments:

    Invesment in ABC bonds321,657

    Investment in UC Inc.253,980

    Notes receivable150,000

    Land held for speculation550,000

    Sinking fund225,000

    Pension fund653,798

    Cash surrender value84,321

    Investment in Uncon. Sub.457,836

    Total investments2,696,592

    Property, Plant, and Equip.

    Building1,375,778

    Land975,000

    Journal Entry

    No.AccountDebitCredit

    110,000

    Class Solution

    Assets=Liabilities+Equity

    AccountsAccountsNotesCommonRetainedCost of

    CashReceivableInventoryBuildingPayablePayableStockEarningsSalesGoods Sold

    1.100,000100,000

    2.150,000150,000

    3.60,00060,000

    4.75,000(30,000)75,00030,000

    540,000(40,000)

    140,00035,00030,000150,000=60,000150,000+100,0000.075,00030,0000.0

    DebitCreditCashAccounts ReceivableCommon Stock

    1.Cash100,000100,00075,00040,000100,000

    Common stock100,00040,000

    2.Building150,000140,0000.035,0000.00.0100,000

    Notes payable150,000

    3.Inventory60,000BuildingAccounts PayableSales

    Accounts payable60,000150,00060,00075,000

    4.Accounts receivable75,000

    Sales75,000150,0000.00.060,0000.075,000

    Cost of goods sold30,000Notes PayableInventoryCost of Goods Sold

    Inventory30,000150,00060,00030,00030,000

    5Cash40,000

    Accounts receivable40,0000.0150,00030,0000.030,0000.0

    Class

    Assets=Liabilities+Equity

    AccountsAccountsNotesCommonRetainedCost of

    CashRec...

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