1. 5-1 5 Balance Sheet

2. 5-2 Balance Sheet, also referred to as the statement of financial position, generally provides information about resources, obligations to creditors, and equity. Balance Sheet

3. 5-3 Evaluating the capital structure. Assess risk and future cash flows. Analyze the company’s:  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 cash flow so that it can respond to unexpected needs and opportunities. Financial flexibility comes from quick access to cash. Balance Sheet Usefulness of the Balance Sheet.

4. 5-4 Most assets are reported at historical cost. Use of judgments and estimates. Many items of financial value are omitted. Limitations of the Balance Sheet Balance Sheet

5. 5-5 General Classifications Balance Sheet

6. 5-6 Balance Sheet Specific Classifications

7. 5-7 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 Assets Classification in the Balance Sheet

8. 5-8  Generally any monies available “on demand.”  Cash equivalents - short-term highly liquid investments that mature within three months or less. Cash Balance Sheet – “Current Assets”

9. 5-9 Claims held against customers and others for money, goods, or services. Accounts receivable – oral promises Notes receivable – written promises Major categories of receivables should be shown in the balance sheet or the related notes. Receivables Balance Sheet – “Current Assets”

10. 5-10 Inventories Disclose: ► Basis of valuation (e.g., lower-of-cost-or-market). ► Method of pricing(e.g., FIFO or average cost). Balance Sheet – “Current Assets” Prepaid Expenses Payment of cash, that is recorded as an asset because service or benefit will be received in the future.

11. 5-11 Long-term Investments 1.Securities (bonds, common stock, or long-term notes). 2.Tangible fixed assets not currently used in operations (land held for speculation). 3.Special funds (pension fund, or plant expansion fund). 4.Non-consolidated subsidiaries or affiliated companies. Classification in the Balance Sheet Non-Current Assets

12. 5-12 Tangible long-lived assets used in the regular operations of the business.  Physical property such as land, buildings, machinery, furniture, tools, and wasting resources (minerals).  With the exception of land, a company either depreciates (e.g., buildings) or depletes (e.g., oil reserves) these assets. Property, Plant, and Equipment Balance Sheet – “Noncurrent Assets”

13. 5-13 Balance Sheet – “Noncurrent Assets” Intangibles Lack physical substance and are not financial instruments.  Limited life intangibles amortized.  Indefinite-life intangibles tested for impairment. Other Assets Items vary in practice. Can include: Long-term prepaid expenses; Non-current receivables; Assets in special funds; Property held for sale and Restricted cash or securities.

14. 5-14 “Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities.” Classification in the Balance Sheet Current Liabilities Long-Term Liabilities “Obligations that a company does not reasonably expect to liquidate within the normal operating cycle.”

15. 5-15 Owners’ Equity Balance Sheet – “Owner’s Equity”

16. 5-16 Balance Sheet Format Account Form

17. 5-17 Balance Sheet Format Report Form