Further Look at Financial Statements - Financial Accounting - Lecture Slides, Slides of Financial Accounting

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A Further Look at

Financial Statements

Study Objectives

1. Identify the sections of a classified balance sheet.
2. Identify and compute ratios for analyzing a company’s profitability.
3. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity.
4. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet.
5. Use the statement of cash flows to evaluate solvency.
6. Explain the meaning of generally accepted accounting principles.
7. Discuss financial reporting concepts.

SO 1 Identify the sections of a classified balance sheet.

Presents a snapshot at a point in time. To improve understanding, companies group similar assets and similar liabilities together.

Assets Liabilities and Owner’s Equity Current assets Current liabilities Long-term investments Long-term liabilities Property, plant, and equipment Stockholders’ equity Intangible assets

Standard Classifications Illustration 2-

SO 1 Identify the sections of a classified balance sheet.

Assets that a company expects to convert to cash or use up within one year or the operating cycle , whichever is longer.

Operating cycle is the average time it takes from the purchase of inventory to the collection of cash from customers.

Current Assets

SO 1 Identify the sections of a classified balance sheet.

Companies usually list current asset accounts in the order they expect to convert them into cash.

Current Assets Illustration 2-

SO 1 Identify the sections of a classified balance sheet.

Investments in stocks and bonds of other companies. Investments in long-term assets such as land or buildings that a company is not currently using in its operating activities.

Long-Term Investments

Illustration 2-

Illustration 2-

SO 1 Identify the sections of a classified balance sheet.

Long useful lives. Currently used in operations. Depreciation - allocating the cost of assets to a number of years. Accumulated depreciation - total amount of depreciation expensed thus far in the asset’s life.

Property, Plant, and Equipment

SO 1 Identify the sections of a classified balance sheet.

Assets that do not have physical substance.

Intangible Assets

Illustration 2-

Patents and copyrights are a. Current assets. b. Intangible assets. c. Long-term investments. d. Property, plant, and equipment.

Review Question

SO 1 Identify the sections of a classified balance sheet.Docsity.com

SO 1 Identify the sections of a classified balance sheet.

Current Liabilities

Illustration 2-

SO 1 Identify the sections of a classified balance sheet.

Obligations a company expects to pay after one year.

Long-Term Liabilities

Illustration 2-

SO 1 Identify the sections of a classified balance sheet.

Stockholders’ Equity

Illustration 2-

Common stock - investments of assets into the business by the stockholders. Retained earnings - income retained for use in the business.

Using the Financial Statements

Ratio Analysis Expresses relationship among selected items of financial statement data. Relationship expressed in terms of either a percentage, a rate, or a simple proportion.