Chapter 6 Flashcards
Balance Sheet also called:
Statement of Financial Position
Balance Sheet is useful for:
Assessing rate of return on investments when examined with Income Statement
3 common cash flow measures based on balance sheet info:
Liquidity, Solvency, Financial Flexbility
Liquidity:
How quickly assets can be converted to cahs to pay liabilities
Solvency:
Long-term ability to pay obligations
Financial Flexibility:
Ability to respond to unexpected needs and opportunities by taking actions that alter cash flows
Limitations of the Balance Sheet:
Many accounts reported at historical cost/Number of assets and liabilities not reported on balance sheet/Many accounts based on estimates
3 types of footnote disclosures:
Info about specific line items/Info about nature of the entity/Info about past events & circumstances
Summary of Significant Accounting Policies footnote:
Usually 1st footnote that reports info on methods used in preparing the financial statements
Subsequent Event:
Events that occur after the balance sheet date but before the financial statements are issued
When to Recognize events:
When condition existed as of balance sheet date but happened after end date and before info published
When to Disclose events:
When condition didn’t exist before balance sheet date and happened before info published
Going Concern Disclosures include:
Conditions that raise doubt on company’s ability to continue/Managements evaluation of significance of going concern conditions/Managements plans to alleviate doubt about continued operations
Related Party Transactions:
Transactions that are engaged in with owners, firm management, affiliated entities, or any other entity that has significant influence.
Disclosure of Related Party Transaction must include:
Nature of relationship/Description of transaction/Amount of transaction/Amount due from or to related parties
