Chapter 5-1 CHAPTER BALANCE SHEET AND STATEMENT OF CASH FLOWS Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 5-2 Learning Learning Objectives Objectives Explain 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 Chapter 5-3 Balance Balance Sheet Sheet and and Statement Statement of of Cash Cash Flows Flows Balance Sheet Usefulness Purpose Limitations Content and format Classification Preparation Additional information reported Usefulness Techniques of disclosure Chapter 5-4 Statement of Cash Flows Balance Balance Sheet Sheet Usefulness of the Balance Sheet Evaluating the capital structure Assess risk and future cash flows Analyze the company’s: Chapter 5-5  Liquidity,  Solvency, and  Financial flexibility LO Explain the uses and limitations of a balance sheet Balance Balance Sheet Sheet Limitations 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 Chapter 5-6 LO Explain the uses and limitations of a balance sheet Balance Balance Sheet Sheet Classification in the Balance Sheet Three General Classifications Assets, Liabilities, and Stockholders’ Equity Companies further divide these classifications: Illustration 5-1 Chapter 5-7 LO Identify the major classifications of the balance sheet Balance Balance Sheet Sheet Current Assets 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 Illustration 5-2 Chapter 5-8 LO Identify the major classifications of the balance sheet Balance Balance Sheet Sheet Review The 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 Chapter 5-9 LO Identify the major classifications of the balance sheet Balance Balance Sheet Sheet –– “Current “Current Assets” Assets” Cash Generally any monies available “on demand.” Cash equivalents - short-term highly liquid investments that mature within three months or less Restrictions or commitments must be disclosed Illustration 5-3 Chapter 5-10 LO Identify the major classifications of the balance sheet Usefulness Usefulness of of the the Statement Statement of of Cash Cash Flows Flows Review The current cash debt coverage ratio is often used to assess a financial flexibility b liquidity c profitability d solvency Chapter 5-58 LO Understand the usefulness of the statement of cash flows  iGAAP requires that specific items be reported on the balance sheet No such general standard exists in U.S GAAP  There are many similarities between U.S and iGAAP related to balance sheet presentation For example:  IAS specifies minimum note disclosures, similar to U.S GAAP on accounting policies and judgments  Comparative prior-period information must be presented and financial statements must be prepared annually  Current/noncurrent classification for assets and liabilities is normally Chapter 5-59 required  Interestingly, iGAAP statements may report property, plant, and equipment first in the balance sheet Some companies report the subtotal “net assets,” which equals total assets minus total liabilities  While the use of the term “reserve” is discouraged in U.S GAAP, there is no such prohibition in iGAAP Chapter 5-60 Using Ratios to Analyze Performance Analysts and other interested parties can gather qualitative information from financial statements by examining relationships between items on the statements and identifying trends in these relationships Chapter 5-61 LO 10 Identify the major types of financial ratios and what they measure Using Ratios to Analyze Performance Chapter 5-62 Illustration 5A-1 A Summary of Financial Ratios LO 10 Identify the major types of financial ratios and what they measure Using Ratios to Analyze Performance Chapter 5-63 Illustration 5A-1 A Summary of Financial Ratios LO 10 Identify the major types of financial ratios and what they measure Using Ratios to Analyze Performance Chapter 5-64 Illustration 5A-1 A Summary of Financial Ratios LO 10 Identify the major types of financial ratios and what they measure Chapter 5-65 Chapter 5-66 Chapter 5-67 Chapter 5-68 Chapter 5-69 Chapter 5-70 Chapter 5-71 Copyright Copyright Copyright © 2009 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 Chapter 5-72 .. .CHAPTER BALANCE SHEET AND STATEMENT OF CASH FLOWS Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 5-2 Learning Learning Objectives... disclosure Chapter 5-4 Statement of Cash Flows Balance Balance Sheet Sheet Usefulness of the Balance Sheet Evaluating the capital structure Assess risk and future cash flows Analyze the company’s: Chapter. .. Current or Noncurrent Chapter 5-11 LO Identify the major classifications of the balance sheet Balance Balance Sheet Sheet –– “Current “Current Assets” Assets” Short-Term Investments Chapter 5-12 Illustration