Chapter 4 - Structure of the balance sheet and statement of cash flows. In this chapter you will learn: How balance sheet accounts are measured and classified; how balance sheet information is used; balance sheet terminology and format outside the U.S; how notes aid your understanding of the firm’s accounting policies, subsequent events, and related-party transactions;...
Chapter 1 stressed the importance of financial statements in helping investors and creditors predict future cash flows. The balance sheet, along with accompanying disclosures, provides relevant information useful in helping investors and creditors not only to predict future cash flows, but also to make the related assessments of liquidity and long-term solvency. The purpose of this chapter is to provide an overview of the balance sheet and financial disclosures and to explore how this information is used by decision makers.
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The aim of this text is to explain the meaning and use of
the principal accountancy statements,models and activities
in business life.
The word ‘statements’ includes balance sheets, profit and
loss accounts, cash flow statements and budget reports.
The word ‘models’is used to mean the exercises of costing,
cash flow forecasting, capital expenditure appraising and
other modelling which is essential for sound business
The word ‘activities’covers the topics of accounting systems
and controls, record keeping (book keeping) and the
operation of the budget process.
Describe the purpose of the balance sheet and understand its usefulness and limitations.
The Balance Sheet
The purpose of the balance sheet is to report a company’s financial position on a particular date.
Limitations: The balance sheet does not portray the market value of the entity as a going concern nor its liquidation value. p Resources such as employee skills and reputation are not recorded in the balance sheet.
Usefulness: p The balance sheet describes many of the resources a company has available for generating future cash flows.
Bài giảng Chapter 3: financial statements, cash flow, and taxes presents of balance sheet, income statement, statement of cash flows, accounting income versus cash flow,MVA and EVA, personal taxes, corporate taxes.
Relevant financial information is provided primarily through financial statements and related disclosure notes.
Statement of Cash Flows.
Statement of Shareholders’ Equity.
The purpose of the balance sheet is to report a company’s financial position on a particular date. It is a freeze frame or snapshot of financial position at the end of a particular day marking the end of an accounting period.
Restricted cash is cash that has been set aside for a particular use and is not available for paying current liabilities. Restricted cash is not a current asset, rather it is classified as an investment on the balance sheet.
A compensating balance is some specified minimum amount that must be maintained on deposit with a bank that has made a loan to the company.
Depreciation, depletion, and amortization are cost allocation processes. We allocate the cost of the asset to expense over its useful life in some rational and systematic manner. The unused portion of the asset’s cost appears on the balance sheet. We allocate a portion of the cost to expense on the income statement each accounting period.
Chapter 20 - Managing credit risk on the balance sheet. This chapter provided an in-depth look at the measurement and on-balance-sheet management of credit risks. The chapter then discussed the role of credit analysis and how it differs across different types of loans, especially mortgage loans, individual loans, mid-market corporate loans, and large corporate loans.
Chapter 21 - Managing liquidity risk on the balance sheet. This chapter provided an in-depth look at the measurement and on-balance-sheet management of liquidity risks. Liquidity risk is a common problem that FI managers face. Welldeveloped policies for holding liquid assets or having access to markets for purchased funds are normally adequate to meet liability withdrawals.
Generally accepted accounting principles, known as GAAP, require that inventories be carried on the balance sheet at lower-of-cost-or-market. Lower-of-cost-or-market represents a departure from the historical cost concept, but is considered a conservative accounting measure.
Chapter 5 - Understanding balance sheets. This chapter describe the elements of the balance sheet: assets, liabilities, and equity; describe uses and limitations of the balance sheet in financial analysis; describe alternative formats of balance sheet presentation; distinguish between current and noncurrent assets, and current and noncurrent liabilities;…
Chapter 24 - Managing risk off the balance sheet with loan sales and securitization. This chapter discussed the increasing role of loan sales in addition to the legal and regulatory factors that are likely to affect the future growth of this market. The chapter also discussed three major forms of securitization pass-through securities, collateralized mortgage obligations (CMOs), and mortgage-backed bonds and described recent innovations in the securitization of other FI assets.
Chapter 38 - The balance of payments, exchange rates, and trade deficits. After reading this chapter, you should be able to: Explain how currencies of different nations are exchanged when international transactions take place, analyze the balance sheet the United States uses to account for the international payments it makes and receives, discuss how exchange rates are determined in currency markets, describe the difference between flexible exchange rates and fixed exchange rates, Identify the causes and consequences of recent record-high U.S. trade deficits.
Chapter 2 - Investing and financing decisions and the balance sheet. After studying this chapter, you should be able to: Define the objective of financial reporting, the elements of the balance sheet, and the related key accounting assumptions and principles; identify what constitutes a business transaction and recognize common balance sheet account titles used in business; Apply transaction analysis to simple business transactions in terms of the accounting model;...
Chapter 4 - Adjustments, financial statements, and the quality of earnings. After studying this chapter, you should be able to: Explain the purpose of a trial balance; explain the purpose of adjustments and analyze the adjustments necessary at the end of the period to update balance sheet and income statement accounts; present an income statement with earnings per share, statement of stockholders' equity, balance sheet, and statement of cash flows; compute and interpret the net profit margin, explain the closing process.
Chapter 17 - The central bank balance sheet and the money supply process. In this chapter, we need to understand how the central bank interacts with the financial system. What is it that central banks buy and sell? What are the assets and liabilities on their balance sheets? How do they control those assets and liabilities, and why might they want to hide them from the public?...
Chapter 23 - Managing risk off the balance sheet with derivative securities. This chapter analyzed the risk-management role of forwards, futures, options, and swaps. These (off-balance-sheet) derivative securities provide FIs with a low-cost alternative to managing risk exposure directly on the balance sheet.