Intermediate Accounting, 11th ed. Kieso, Weygandt, and Warfield Prepared by Jep Robertson New Mexico State University Chapter 5: Balance Sheet and Statement.

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Intermediate Accounting, 11th ed.Kieso, Weygandt, and WarfieldPrepared by Jep RobertsonNew Mexico State UniversityChapter 5: Balance Sheet and Statement of Cash Flows SystemsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Identify 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.Identify balance sheet information requiring supplemental disclosure.After studying this chapter, you should be able to:Chapter 5: Balance Sheet and Statement of Cash Flows SystemsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Identify 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.Chapter 5: Balance Sheet and Statement of Cash Flows SystemsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Part 1: The Balance SheetIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)The balance sheet provides information for evaluating:Capital structureRates of returnAnalyzing an enterprises:LiquiditySolvency Financial flexibilityBalance Sheet: UsefulnessIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Most assets and liabilities are stated at historical cost.Judgments and estimates are used in determining many of the items.The balance sheet does not report items that can not be objectively determined.It does not report information regarding off-balance sheet financing.Balance Sheet: LimitationsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Guidelines for reporting assets and liabilities separately:Type or expected function in the central operationsImplications for the enterprises financial flexibilityLiquidity characteristicsBalance Sheet: ClassificationIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Current AssetsLong-term investmentsProperty, plant, andequipmentIntangible assetsOther assetsCurrent liabilitiesLong-term debtOwners equityCapital stockAdditional paid-in capitalRetained earningsBalance Sheet: ClassificationIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Current assets are expected to be consumed, sold, or converted into cash: either in one year or in the operating cycle, whichever is longer.Current assets are presented in order of liquidity.The following valuation principles are used:Short-term investments at fair valueAccounts receivable at net realizable valueCurrent AssetsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Long-term investments may be:Investments in securities (bonds, stock)Investments in fixed assets (land not used in operations)Investments set aside in special funds (e.g., sinking fund)Investments in non-consolidated subsidiaries or affiliated companies Long-Term InvestmentsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Current liabilities are liquidated:Either through the use of current assets, orBy creation of other current liabilitiesExamples of current liabilities include:Payables resulting from acquisitions of goods and servicesCollections received in advance of servicesOther liabilities which will be paid in the short termCurrent LiabilitiesIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Long-term obligations are those not expected to be paid within the operating cycle.Examples are:obligations arising from specific financingsituations (issuance of bonds)obligations arising from ordinary businessoperations (pension obligations)obligations that are contingent (productwarranties)Long-Term LiabilitiesIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Additional information may be:Information not presented elsewhere, orInformation that qualifies items in the balance sheetSupplemental information examples:Material events having an uncertain outcomeExplanations regarding accounting policiesCovenant restrictions Balance Sheet: Additional Information ReportedIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Parenthetical explanationsNotesCross references and contra items Supporting schedulesBalance Sheet: Techniques of DisclosureIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Part 1: The Statement of Cash FlowsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)The cash flow statement provides information about:cash receipts (cash inflows)uses of cash (cash outflows) during a period of timeInflows and outflows are reported for:operatinginvesting financing activitiesThe Cash Flow StatementIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Cash Inflows and OutflowsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)There are two methods of preparing the statement of cash flows:Indirect method: derives cash flows from accrual based statementsDirect method: derives cash flows directly for each source or use of cash Preparing a Statement of Cash FlowsIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)The Statement of Cash Flows: Indirect MethodIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)Ratio analysis expresses the relationship between selected financial data.These relationships can be expressed as: percentages rates, or proportionsRatio AnalysisIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)TypeWhat is measuredExamplesTypes of RatiosIntermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)COPYRIGHTCopyright 2004 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.Intermediate Accounting, 10th Edition, Ch. 5 (Kieso et al.)2

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