2.1 Balance Sheet (Statement of Financial Position) Flashcards
What does the balance sheet help a user assess about an entity?
- liquidity
- financial flexibility
- risk
The left side of the balance sheet represents the entity’s ______ structure
Resource structure which consists of assets current & noncurrent
How are assets generally reported on the balance sheet?
in order of liquidity
Current Assets:
Define current assets
- cash and other assets or resources expected to be realized in cash or sold or consumed during the normal operating cycle of the business
Current Assets:
What is an operating cycle?
- the average time between the acquisition of resources and the final receipt of cash from their sale as the culmination of revenue generating activities
Current Assets:
What time-frame is used for segregating current from non-current assets if the cycle is < a year?
1 year is used
Current Assets:
Identify the 6 items included as current assets
1 - Cash and cash equivalents;
2 - Certain individual trading, available-for-sale, and held-to-maturity debt securities;
3 - Receivables;
4 - Inventories;
5 - Prepaid expenses; and
6 - Certain individual investments in equity securities
Non-current Assets:
Define investments and funds as non-current assets
nonoperating items intended to be held beyond the longer of 1 year or the operating cycle
Non-current Assets:
Identify the 4 assets classified as investments and funds that are regarded as non-current assets
1 - Investments in equity securities made to control or influence another entity
2 - Other non-current equity securities (AFS, HTM)
3 - Funds restricted for other than current operations,
- to retire long-term debt,
- satisfy pension obligations, or
- pay for the acquisition or
construction of non-current assets
4 - Capital assets not used in current operations,
- Idle facilities or
- Land held for a future plant site
Non-current Assets:
Identify the 5 categories of non-current assets
1 - investments and funds
2 - property, plant & equipment (PPE)
3 - intangible assets
4 - other non-current assets
5 - deferred charges
Non-current Assets:
Define PPE or property plant and equipment
tangible operating items recorded at cost and reported net of any accumulated depreciation
Non-current Assets:
Provide examples of PPE
- Land and natural resources subject to depletion, e.g., oil and gas
- Buildings, equipment, furniture, fixtures, leasehold improvements, land improvements, noncurrent assets under construction, and other depreciable assets
Non-current Assets:
Define intangible assets and provide an example
- non-financial assets without physical substance
- Examples are patents and goodwill
Non-current Assets:
Define “other non-current assets” and provide an example
- non-current assets not readily classifiable elsewhere
- Examples are deferred tax assets and long-term receivables
Non-Current Assets:
Define “deferred charges” as a non-current asset
long-term prepayments
Current Liabilities:
Define current liabilities
obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current liabilities
Current Liabilities:
When are current liabilities generally expected to be settled or liquidated?
in the ordinary course of business during the longer of 1 year or the operating cycle.
Current Liabilities:
Identify the 5 common categories of current liabilities
1 - trade payables
2 - other payables or accruals arising from operations
3 - unearned revenues
4 - other current liabilities
5 - non-current obligations callable
Current Liabilities:
Define trade payables
obligations incurred for items entering or used during the operating cycle (materials & supplies used in producing goods or services for sale)
Current Liabilities:
Provide an example of “other payables” arising from operations that are listed as current liabilities
accruals such as:
- wages
- salaries
- rentals
- royalties
- taxes
Current Liabilities:
Define unearned revenues
- arise from collections or receiving payment in advance of delivering goods or performing services
Current Liabilities:
Identify “other current liabilities”
- Short-term notes given to acquire capital assets
- Payments on the current portion of serial bonds or other non-current debt
Current Liabilities:
Define “non-current obligations callable” and how are they classified as current liabilities
- violation of a long term debt agreement that will become due or is currently due if the violation is not cured within a specified time frame.
Current Liabilities:
How are obligations classified on the balance sheet when an entity intends to refinance them on a non-current basis and demonstrates an ability to do so?
non-current liabilities
Current Liabilities:
How is the ability to refinance demonstrated?
- Entering into a financing agreement meeting all conditions before the balance sheet is issued.
- Issuing a non-current obligation or equity securities after the end of the reporting period but before issuance of the balance sheet.
Current Liabilities:
Define working capital
current assets - current liabilities
Current Liabilities:
How are debts to be paid from funds accumulated in non-current asset accounts classified on the balance sheet?
as current liability
Non-Current Liabilities:
Identify the 7 items that are commonly classified as non-current liabilities
non-current portions of the following
1 - non-current notes and bonds
2 - lease liability
3 - most post-retirement benefit obligations
4 - obligations under product or service warranty agreements
5 - Advances for non-current commitments to provide goods or services
6 - Deferred revenue
7 - deferred tax liabilities arising from interperiod tax allocation
Equity or Net Assets:
Identify the 4 items equity consists of:
1 - capital contributed by owners
2 - retained earnings
3 - accumulated other comprehensive income
4 - non-controlling interest in a consolidated entity
Equity or Net Assets:
Define equity or net assets for a not-for-profit entity
the residual after total liabilities are subtracted from total assets.
Equity or Net Assets:
How is treasury stock presented in the equity section of the balance sheet?
as a reduction of total equity
Equity or Net Assets:
What is treasury stock?
the entity’s own common stock that it has repurchased
