Balance Sheet and Statement of Cash Flows.ppt

1、Prepared by Coby Harmon University of California, Santa Barbara,Intermediate Accounting,Intermediate Accounting 14th Edition,5,Balance Sheet and Statement of Cash Flows,Kieso, Weygandt, and Warfield,Explain the uses and limitations of a balance sheet. Identify the major classifications of the balanc

2、e sheet. Prepare a classified balance sheet using the report and account formats. 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. Determine which bal

3、ance sheet information requires supplemental disclosure. Describe the major disclosure techniques for the balance sheet.,Learning Objectives,Balance Sheet,Additional Information,Usefulness Limitations Classification,Supplemental disclosures Techniques of disclosure,Balance Sheet and Statement of Cas

4、h Flows,Statement of Cash Flows,Purpose Content and format Preparation Usefulness,Balance Sheet, also referred to as the statement of financial position: Reports assets, liabilities, and equity at a specific date. Provides information about resources, obligations to creditors, and equity in net reso

5、urces. Helps in predicting amounts, timing, and uncertainty of future cash flows.,Balance Sheet,LO 1 Explain the uses and limitations of a balance sheet.,Computing rates of return. Evaluating the capital structure. Assess risk and future cash flows. Analyze the companys: Liquidity, Solvency, and Fin

6、ancial flexibility.,Balance Sheet,Usefulness of the Balance Sheet,LO 1 Explain the uses and limitations of a balance sheet.,Most assets and liabilities are reported at historical cost. Use of judgments and estimates. Many items of financial value are omitted.,Limitations of the Balance Sheet,Balance

7、 Sheet,LO 1 Explain the uses and limitations of a balance sheet.,Classification,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet,Illustration 5-1,In practice you usually see little departure from these major subdivisions.,Balance Sheet,Classification,LO 2 Identify the majo

8、r classifications of the balance sheet.,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,Illustration 5-2,LO 2 Identify the major classifications of the

9、 balance sheet.,Review,The correct order to present current assets is Cash, accounts receivable, prepaid items, inventories. Cash, accounts receivable, inventories, prepaid items. Cash, inventories, accounts receivable, prepaid items. Cash, inventories, prepaid items, accounts receivable.,Classifica

10、tion in the Balance Sheet,LO 2 Identify the major classifications of the balance sheet.,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.,Cash,LO 2,Illustration 5

11、-3,Balance Sheet “Current Assets”,Illustration 5-4 Balance SheetRestricted Cash,Cash,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current Assets”,Portfolios,Type,Valuation,Classification,Held-to-Maturity,Debt,Amortized Cost,Current or Noncurrent,Trading,Debt or Equity

12、,Fair Value,Current,Available- for-Sale,Debt or Equity,Fair Value,Current or Noncurrent,Short-Term Investments,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current Assets”,Illustration 5-5 Balance Sheet Presentation of Investments in Securities,Short-Term Investments,

13、LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current Assets”,Major categories of receivables should be shown in the balance sheet or the related notes. A company should clearly identify Anticipated loss due to uncollectibles. Amount and nature of any nontrade receivab

14、les. Receivables used as collateral.,Receivables,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current Assets”,Receivables,Illustration 5-6 Balance Sheet Presentation of Receivables,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current As

15、sets”,Inventories,Disclose: Basis of valuation (e.g., lower-of-cost-or-market). Cost flow assumption (e.g., FIFO or average cost).,LO 2,Illustration 5-6,Balance Sheet “Current Assets”,Payment of cash, that is recorded as an asset because service or benefit will be received in the future.,insurance s

16、upplies advertising,Cash Payment,Expense Recorded,BEFORE,rent taxes,Prepayments often occur in regard to:,Prepaid Expenses,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current Assets”,Prepaid Expenses,Illustration 5-9,LO 2 Identify the major classifications of the bal

17、ance sheet.,Balance Sheet “Current Assets”,Current Assets - “Summary”,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.,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Current

18、 Assets”,Long-term Investments Securities (bonds, common stock, or long-term notes). Tangible fixed assets not currently used in operations (land held for speculation). Special funds (sinking fund, pension fund, or plant expansion fund. Non-consolidated subsidiaries or affilated companies.,Classific

19、ation in the Balance Sheet,Non-Current Assets,LO 2 Identify the major classifications of the balance sheet.,Portfolios,Type,Valuation,Classification,Held-to-Maturity,Debt,Amortized Cost,Current or Noncurrent,Trading,Debt or Equity,Fair Value,Current,Available- for-Sale,Debt or Equity,Fair Value,Curr

20、ent or Noncurrent,Balance Sheet “Noncurrent Assets”,Long-Term Investments,LO 2 Identify the major classifications of the balance sheet.,Long-Term Investments,Securities,bonds, stock, and long-term notes,For marketable securities, managements intent determines current or noncurrent classification.,LO

21、 2,Balance Sheet “Noncurrent Assets”,Long-Term Investments,Balance Sheet “Noncurrent Assets”,Fixed Assets,Land held for speculation,LO 2,Long-Term Investments,Balance Sheet “Noncurrent Assets”,Special Funds,Sinking fund Pensions fund Cash surrender value of life insurance,LO 2,Long-Term Investments,

22、Balance Sheet “Noncurrent Assets”,Nonconsolidated Subsidiaries or Affiliated Companies,LO 2,Long-Term Investments,Illustration 5-10 Balance Sheet Presentation of Long-Term Investments,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Noncurrent Assets”,Tangible long-lived

23、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,

24、and Equipment,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Noncurrent Assets”,LO 2 Identify the major classifications of the balance sheet.,Property, Plant, and Equipment,Balance Sheet “Noncurrent Assets”,Tangible assets used in the regular operations of the business.

25、,Illustration 5-11 Balance Sheet Presentation of Property, Plant, and Equipment,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Noncurrent Assets”,Balance Sheet “Noncurrent Assets”,Intangibles,Lack physical substance and are not financial instruments. Limited life intang

26、ibles amortized. Indefinite-life intangibles tested for impairment.,LO 2,Intangibles (BE5-6): Patrick Corporation adjusted trial balance contained the following asset accounts at December 31, 2012: Prepaid Rent $12,000; Goodwill $50,000; Franchise Fees Receivable $2,000; Franchises $47,000; Patents

27、$33,000; Trademarks $10,000. Prepare the intangible assets section of the balance sheet.,Intangibles,Goodwill $ 50,000,Franchises 47,000,Patents 33,000,Trademarks 10,000,Total $140,000,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Noncurrent Assets”,Intangible Assets,I

28、llustration 5-12 Balance Sheet Presentation of Intangible Assets,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Noncurrent Assets”,Items vary in practice. Can include: Long-term prepaid expenses Non-current receivables Assets in special funds Property held for sale Rest

29、ricted cash or securities,Other Assets,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Noncurrent Assets”,Balance Sheet “Noncurrent Assets”,Other Assets,This section should include only unusual items sufficiently different from assets in the other categories.,LO 2,“Oblig

30、ations 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,LO 2 Identify the major classifications of the balance sheet.,Current Liabilities,Illustration 5-13 Ba

31、lance Sheet Presentation of Current Liabilities,LO 2 Identify the major classifications of the balance sheet.,Classification in the Balance Sheet,“Obligations that a company does not reasonably expect to liquidate within the normal operating cycle.” All covenants and restrictions must be disclosed.,

32、Long-Term Liabilities,LO 2 Identify the major classifications of the balance sheet.,Classification in the Balance Sheet,Long-Term Liabilities (BE5-9): Included in Adams Companys December 31, 2012, trial balance are the following accounts: Accounts Payable $220,000; Pension Asset/Liability $375,000;

33、Discount on Bonds Payable $29,000; Unearned Revenue $41,000; Bonds Payable $400,000; Salaries and Wages Payable $27,000; Interest Payable $12,000; Income Taxes Payable $29,000. Prepare the long-term liabilities section of the balance sheet.,Long-term liabilities,Pension Asset/liability $375,000,Bond

34、s payable 400,000,Discount on bonds payable (29,000),Total 746,000,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Long-Term Liabilities”,Non-Current Liabilities,Illustration 5-14 Balance Sheet Presentation of Non-Current Liabilities,LO 2 Identify the major classificatio

35、ns of the balance sheet.,Balance Sheet “Long-Term Liabilities”,Owners Equity,LO 2 Identify the major classifications of the balance sheet.,Balance Sheet “Owners Equity”,Illustration 5-15 Balance Sheet Presentation of Stockholders Equity,Owners Equity,LO 2 Identify the major classifications of the ba

36、lance sheet.,Balance Sheet “Owners Equity”,(a)Investment in preferred stock,Classification in the Balance Sheet,Account,(b)Treasury stock,(c)Common stock,(d)Cash dividends payable,(e)Accumulated depreciation,(f)Interest payable,(g)Deficit,(h)Trading securities,(i)Unearned revenue,(a)Current asset/In

37、vestment,(b)Stockholders Equity,(c)Stockholders Equity,(d)Current liability,(e)Contra-asset,(f)Current liability,(g)Stockholders Equity,(h)Current asset,(i)Current liability,Classification,LO 2 Identify the major classifications of the balance sheet.,Classified Balance Sheet Account form Report form

38、,Balance Sheet Format,Accounting Trends and Techniques2009 (New York: AICPA) indicates that all of the 500 companies surveyed use either the “report form” (438) or the “account form” (62), sometimes collectively referred to as the “customary form.”,LO 3 Prepare a classified balance sheet using the r

39、eport and account formats.,LO 3 Prepare a classified balance sheet using the report and account formats.,Balance Sheet Format,Account Form,Illustration 5-16,LO 3,Balance Sheet Format,Report Form,Illustration 5-16,Statement of Cash Flows,LO 4 Indicate the purpose of the statement of cash flows.,One o

40、f the three basic objectives of financial reporting is,“assessing the amounts, timing, and uncertainty of cash flows.”,To provide relevant information about the cash receipts and cash payments of an enterprise during a period. The statement provides answers to the following questions: Where did the

41、cash come from? What was the cash used for? What was the change in the cash balance?,Purpose of the Statement of Cash Flows,Statement of Cash Flows,LO 4 Indicate the purpose of the statement of cash flows.,Three different activities: Operating,Content and Format,Statement of Cash Flows,LO 5 Identify

42、 the content of the statement of cash flows.,Investing,Financing,Illustration 5-17 Basic Format of Cash Flow Statement,Financing,Cash inflows and outflows from non-current liabilities and equity.,Statement of Cash Flows,Operating,Cash inflows and outflows that enter into the determination of net inc

43、ome.,Investing,Cash inflows and outflows from non-current assets.,The statements value is that it helps users evaluate liquidity, solvency, and financial flexibility.,LO 5 Identify the content of the statement of cash flows.,Content and Format,Statement of Cash Flows,LO 5 Identify the content of the

44、 statement of cash flows.,Illustration 5-18,Information obtained from several sources: (1) comparative balance sheets, (2) the current income statement, and (3) selected transaction data.,Sources of Information,Preparation of the Statement of Cash Flows,LO 6 Prepare a basic statement of cash flows.,

45、Statement of Cash Flows,Statement of Cash Flows: On January 1, 2012, in its first year of operations, Telemarketing Inc. issued 50,000 shares of $1 par value common stock for $50,000 cash. The company rented its office space, furniture, and telecommunications equipment and performed marketing servic

46、es throughout the first year. In June 2012 the company purchased land for $15,000. Illustration 5-19 shows the companys comparative balance sheets at the beginning and end of 2012.,LO 6 Prepare a basic statement of cash flows.,Statement of Cash Flows,LO 6,Illustration 5-19,Illustration 5-20,Statemen

47、t of Cash Flows,Preparing the Statement of Cash Flows,Determine: Cash provided by (or used in) operating activities. Cash provided by or used in investing and financing activities. Determine the change (increase or decrease) in cash during the period. Reconcile the change in cash with the beginning

48、and the ending cash balances.,LO 6 Prepare a basic statement of cash flows.,Statement of Cash Flows,Cash provided by operating activities,Illustration 5-21,Illustration 5-19,Illustration 5-20,LO 6 Prepare a basic statement of cash flows.,Statement of Cash Flows,Illustration 5-21,Next, the company de

49、termines its investing and financing activities.,Illustration 5-19,Illustration 5-20,Statement of Cash Flows,Statement of Cash Flows (BE 5-12): Keyser Beverage Company reported the following items in the most recent year.,Activity,Operating,Financing,Operating,Operating,Investing,Operating,Financing

50、,Required: Compute net cash provided by operating activities.,Net income $40,000 Dividends paid 5,000 Increase in accounts receivable 10,000 Increase in accounts payable 7,000 Purchase of equipment 8,000 Depreciation expense 4,000 Issue of notes payable 20,000,LO 6 Prepare a basic statement of cash

51、flows.,Statement of Cash Flows,Noncash charge to expenses.,Statement of Cash Flows (BE 5-12),LO 6 Prepare a basic statement of cash flows.,Noncash credit to revenues.,Review,In preparing a statement of cash flows, which of the following transactions would be considered an investing activity? a. Sale

52、 of equipment at book value b. Sale of merchandise on credit c. Declaration of a cash dividend d. Issuance of bonds payable at a discount receivable.,Statement of Cash Flows,LO 6 Prepare a basic statement of cash flows.,Issuance of common stock to purchase assets. Conversion of bonds into common sto

53、ck. Issuance of debt to purchase assets. Exchanges on long-lived assets.,Statement of Cash Flows,Significant financing and investing activities that do not affect cash are reported in either a separate schedule at the bottom of the statement of cash flows or in the notes. Examples include:,Significa

54、nt Noncash Activities,LO 6 Prepare a basic statement of cash flows.,Statement of Cash Flows,Illustration 5-23 Comprehensive Statement of Cash Flows,High amount - company able to generate sufficient cash to pay its bills. Low amount - company may have to borrow or issue equity securities to pay bills

55、.,Usefulness of the Statement of Cash Flows,Without cash, a company will not survive. Cash flow from Operations:,LO 7 Understand the usefulness of the statement of cash flows.,Usefulness of the Statement of Cash Flows,Ratio indicates whether the company can pay off its current liabilities from its o

56、perations. A ratio near 1:1 is good.,LO 7 Understand the usefulness of the statement of cash flows.,Financial Liquidity,Net Cash Provided by Operating Activities,Average Current Liabilities,Current Cash Debt Coverage Ratio,=,Usefulness of the Statement of Cash Flows,This ratio indicates a companys a

57、bility to repay its liabilities from net cash provided by operating activities, without having to liquidate the assets employed in its operations.,LO 7 Understand the usefulness of the statement of cash flows.,Net Cash Provided by Operating Activities,Average Total Liabilities,Cash Debt Coverage Rat

58、io,=,Financial Liquidity,Usefulness of the Statement of Cash Flows,The amount of discretionary cash flow a company has for purchasing additional investments, retiring its debt, purchasing treasury stock, or simply adding to its liquidity.,LO 7 Understand the usefulness of the statement of cash flows

59、.,Illustration 5-28,Free Cash Flow,Review,The current cash debt coverage ratio is often used to assess a. financial flexibility. b. liquidity. c. profitability. d. solvency.,LO 7 Understand the usefulness of the statement of cash flows.,Usefulness of the Statement of Cash Flows,Supplemental Disclosures,Four types of information that are supplemental to account titles and amounts presented in the balance sheet:,LO 8 Determine which balance sheet information requires supplemental disclosure.,Parenthetical Explanations Notes Cros