Kế toán, kiểm toán - Chapter 3: The balance sheet and financial disclosures

The Balance Sheet and Financial DisclosuresChapter 3The Balance SheetLimitations:The balance sheet does not portray the market value of the entity as a going concern nor its liquidation value.Resources such as employee skills and reputation are not recorded in the balance sheet.Usefulness:The balance sheet describes many of the resources a company has for generating future cash flows.It provides liquidity information useful in assessing a company’s ability to pay its current obligations.It provides long-term solvency information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure.Reports a company’s financial position on a particular date.AssetsLiabilitiesShareholders’ EquityClassificationsCashCash EquivalentsShort-term InvestmentsReceivablesInventoriesPrepaid ExpensesCurrent AssetsWill be converted to cash or consumed within one year or the operating cycle, whichever is longer.Current AssetsCash equivalents include certain negotiable items such as commercial paper, money market funds, and U.S. treasury bills.Operating Cycle of a Typical Manufacturing CompanyUse cash to acquire raw materialsConvert raw materials to finished productDeliver product to customerCollect cash from customer1234Noncurrent AssetsInvestmentsProperty, Plant, & EquipmentIntangible AssetsOther AssetsNot expected to be converted to cash or consumed within one year or the operating cycle, whichever is longer.Noncurrent AssetsNoncurrent AssetsOther AssetsInclude long-term prepaid expenses and any noncurrent assets not falling in to one of the other classifications.InvestmentsNot used in the operations of the business.Include both debt and equity securities of other corporations, land held for speculation, noncurrent receivables, and cash set aside for special purposes.Property, Plant, and EquipmentAre tangible, long-lived, and used in the operations of the business.Include land, buildings, equipment, machinery, and furniture as well as natural resources such as mineral mines, timber tracts, and oil wells.Reported at original cost less accumulated depreciation (or depletion for natural resources), except for land which is not depreciated.Intangible AssetsUsed in the operations of the business but have no physical substance.Include patents, copyrights, and franchises.Reported net of accumulated amortization.©Current LiabilitiesAccounts PayableNotes PayableAccrued LiabilitiesUnearned RevenuesCurrent Maturities of Long-Term DebtObligations expected to be satisfied through current assets or creation of other current liabilities within one year or the operating cycle, whichever is longer.Current LiabilitiesLong-Term LiabilitiesLong-term Notes MortgagesLong-term BondsPension ObligationsLease ObligationsObligations that will not be satisfied within one year or the operating cycle, whichever is longer.Long-Term LiabilitiesShareholders’ equity is the residual interest in the assets of an entity that remains after deducting liabilities. Disclosure NotesSummary of Significant Accounting PoliciesConveys valuable information about the company’s choices from among various alternative accounting methods.Subsequent EventsA significant development that occurs after the company’s fiscal year-end but before the financial statements are issued or available to be issued.Noteworthy Events and TransactionsTransactions or events that are potentially important to evaluating a company’s financial statements, e.g., related-party transactions, errors and irregularities, and illegal acts.Management Discussion and AnalysisProvides a biased but informed perspective of a company’s operations, liquidity, and capital resources.Management’s ResponsibilitiesPreparing the financial statements and other information in the annual report.Maintaining and assessing the company’s internal control procedures. Auditors’ ReportExpresses the auditors’ opinion as to the fairness of presentation of the financial statements in conformity with generally accepted accounting principles.The auditors’ report must comply with specifications of the Public Companies Accounting Oversight Board (PCAOB).Auditors’ OpinionsUnqualifiedIssued when the financial statements present fairly the financial position, results of operations, and cash flows and are in conformity with U.S. GAAP.QualifiedIssued when there is an exception that is not of sufficient seriousness to invalidate the financial statements as a whole.AdverseIssued when the exceptions are so serious that a qualified opinion is not justified.DisclaimerIssued when insufficient information has been gathered to express an opinion.Using Financial Statement InformationComparative Financial StatementsAllow financial statement users to compare year-to-year financial position, results of operations, and cash flows.Horizontal AnalysisExpresses each item in the financial statements as a percentage of that same item in the financial statements of another year (base amount).Vertical AnalysisInvolves expressing each item in the financial statements as a percentage of an appropriate corresponding total, or base amount, within the same year.Ratio AnalysisAllows analysts to control for size differences over time and among firms.Liquidity Ratios=Current ratioCurrent assetsCurrent liabilitiesMeasures a company’s ability to satisfy its short-term liabilities=Acid-test ratioQuick assetsCurrent liabilitiesProvides a more stringent indication of a company’s ability to pay its current liabilitiesFinancing Ratios=Debt to equity ratioTotal liabilitiesShareholders’ equityIndicates the extent of reliance on creditors, rather than owners, in providing resources=Times interest earned ratioNet income + Interest expense + Income taxesInterest expenseIndicates the margin of safety provided to creditorsAppendix 3: Reporting Segment InformationReportable Operating Segment CharacteristicsEngages in business activities from which it may earn revenues and incur expenses.Many companies operate in several business segments as a strategy to achieve growth and to reduce operating risk through diversification. Segment reporting facilitates the financial statement analysis of diversified companies.Operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.Discrete financial information is available.End of Chapter 3