1 Elements of the Balance Sheet M. En C. Eduardo Bustos Farías

2 Elements of the Balance Sheet -- Assets Assets are probable future economic benefits obtained or controlled by a company as a result of past transactions or events.

3  The resource must be able to contribute directly or indirectly to the company’s future net cash inflows.  The company must be able to obtain the future benefit and control others’ access to it.  The transaction or event giving the company the right to or control over the benefit must have occurred. Elements of the Balance Sheet -- Assets

4 Assets may be natural or man- made, tangible or intangible, and exchangeable or useful in the company’s activities.

5 Elements of the Balance Sheet -- Liabilities Liabilities are probable future sacrifices of economic benefits arising from present obligations...L Elements of the Balance Sheet -- Liabilities … of a company to transfer assets or provide services to other entities in the future as a result of past transactions or events.

6 Current Assets Current assets are cash and other assets that are expected to be converted into cash, sold, or consumed within one year or the normal operating cycle, whichever is longer.

7 Current Assets Cash includes cash on hand and readily available in checking and savings accounts. Cash equivalents are risk-free securities, such as money market funds and treasury bills that will mature in three months or less from the date acquired by the holder.

8 Current Assets Temporary investments in marketable securities include debt and equity securities that are classified as “trading securities” and “available- for-sale securities.”

9 Current Assets Receivables include accounts receivable and notes receivable with short-term maturity dates. They are listed at their estimated collectible amounts (net realizable values). Inventories include goods held for resale in the normal course of business plus, in the case of a manufacturing company, raw materials and goods in process. Prepaid items include insurance, rent, office supplies and taxes that will not be converted into cash but will be consumed.

10 Current Liabilities Current liabilities are those obligations whose liquidation is expected to require the use of existing current assets, or the creation of other current liabilities.

11 Long-Term Investments Investment items that management expects to hold for more than one year or the operating cycle, whichever is longer, are classified as long-term (noncurrent) investments.

12 The company expects the market value of the investment to increase. The company wishes to receive income from interest or dividends. The company may desire to exercise control over another company or a supplier. The company may acquire property, plant, or equipment for future expansion. Long-Term Investments A company makes investments for a variety of reasons.

13 Property, Plant, and Equipment Property, plant, and equipment includes the tangible assets used in the firm’s operations. Also called fixed assets

14 Intangible Assets Intangible assets are those noncurrent economic resources that are used in the operations of the business but have no physical existence. Patents Copyrights Franchises Trademarks ® a registered trademark Computer software costs Goodwill

15 Long-Term Liabilities Long-term liabilities are those obligations that are not expected to require the use of current assets or not expected to create current liabilities within one year or the normal operating cycle (if longer than a year).

16 Other Liabilities Deferred tax liabilities and obligations of a segment of the company that is being discontinued are examples of items that might be included in this section.