Flashcards in The Balance Sheet Deck (19):
the balance sheet
statement of financial position: snapshot at a specific point in time, of the resources controlled by an entity (assets), the claims against those resources (liabilities), and the owners' residual interest in the entity (owners' equity
four requirements of an asset
1. Acquired at measurable cost 2. Obtained or controlled by the entity 3. Expected to produce future economic benefits 4. Arises from a past transaction or event
have physical substance like a building or computer
non tangible assets
do not have physical substance like licenses and prepaid expenses
Current assets include cash and those assets that are expected to be converted into cash or consumed within 12 months of the balance sheet date
non current assets
non-current assets are assets that are expected to provide economic benefits for periods longer than a year.
Some tangible, non-current assets with limited lives, such as the warehouse building, have an associated contra-asset account, called accumulated depreciation, that reduces the recorded value of the asset
obligations of the entity to other parties.
three requirements of a liability
1. ?It involves a probable future sacrifice of economic resources by the entity 2. ?The economic resource transfer is to another entity 3. ?The future sacrifice is a present obligation, arising from a past transaction or event
expected to become due within 12 months of the balance sheet
expected to become due more than 12 months past the balance sheet date.
residual interest of the entity's owners in the company's assets (net assets, stockholders equity, shareholder's equity, or just equity) the amount remaining after liabilities are deducted from assets.
the accounting equation
The left side of the accounting equation--total assets--represents all of an entity's resources that have probable future economic benefits that the entity has obtained or controls as a result of past transactions or events. The right side of the equation--total liabilities plus owners' equity--represents the sources for those resources. Therefore, the two sides must be equal at all times.
formalizes the idea that there are two sides to every accounting transaction - double entry book-keeping. after both sides of each accounting transaction are recorded on the entity's books, the basic accounting equation should remain balanced.
(a.k.a cost concept) provide guidance as to the amount at which a tranaction should be reported initially in the entitiy's account. It requires that transactions be recorded in terms of their actual price or cost at the time the transaction occurred.
relevance vs. reliabiltiy
market value vs. historical cost
financial ratio analysis
ratios based on the amounts in the financial statements.
ratio of current assets to current liabilities is a measure of an entity's ability to meet its maturing short-term obligations. In the current ratio, the numerator, current assets, represents the resources of the entity that are either cash or expected to soon be converted into cash The denominator, current liabilities, represents the current claims of creditors that must be extinguished in the near-term.