AC 210 - CH 2: The Financial Statements: "A Deeper Look"

balance sheet

reports on a company’s financial position at a point in time; accounting equation is expanded by classifying assets and liabilities as current or long term

operating cycle

the time it takes a company to buy inventory, sell it, and collect cash from the customer

current assets

expected to be converted to cash, sold, or used within one year of the operating cycle, if longer; listed by liquidity

cash

money on hand or in bank accounts available for immediate use

cash equivalent

short-term, liquid investments easily convertible to cash

accounts receivable (AR)

amounts due from customers for goods or services (30-60 days)

allowance for uncollectable accounts

estimated AR not expected to be collected

supplies

items used in daily operations not for sale

inventory

goods held for sale to customers

prepaid expenses

advance payments for future services (rent, insurance, etc.)

interest receivable

interest earned, not yet received

long term assets

assets expected to be held or used for more than one year or the operating cycle, if longer

long-term investments

investments in other companies that are not for short term sale or trading

notes receivable

written promises to pay a future amount of money from customers or others

property, plant, & equipment (PPE)

tangible assets used in operations, depreciated over time (except land)

intangible assets

non-physical assets (patents, trademarks, copyrights, franchises, goodwill, etc.)

other long-term assets

assets that don’t fit other categories

common asset measurement methods

historical cost, book value, market value

historical cost

based on the asset’s original purchase price

book value

historical cost minus accumulated depreciation or amortization

market value

estimated selling price in an orderly, fair-market transaction

current liabilities

obligations due within one year- or the operating cycle, if longer- listed by maturity

accounts payable

amounts owed to suppliers for purchases on account

deferred revenue

cash received in advance for future goods or services

utilities payable

amounts owed for utilities

salaries payable

wages earned by employees but not yet paid

taxes payable

amounts owed for payroll, income, or other taxes

interest payable

interest owed on loans or bonds but not yet paid

current portion of long term debt

part of long-term obligations due within the next year

long-term liabilities

obligations a company expects to satisfy in more than one year

notes payable

long term loans

bonds payable

formal debt issued to investors through the bond market

pension obligations

estimated future payments for employee retirement benefits

other long term liabilities

other obligations due in more than one year

contributed capital

stockholder’s investments, usually divided into common stock and additional paid-in capital (APIC)

retained earnings

accumulated profits not yet distributed to stockholders

book value does not usually equal ______

market value

book value = ?????

assets + liabilities

market value = ????????

what the company is worth in the market place

income statement

measures a company’s performance and reports its profits or loss over a period of time; revenue - expenses = net income

revenue

amounts earned from providing goods or services to customers

sales revenue and service revenue are examples of what?

revenue

cost of goods sold (COGS)

cost of the inventory or goods sold to customers

merchandise or product costs are examples of what?

cost of goods sold