Chapter 2 - A further look at financial statements. After studying this chapter, you should be able to: Identify the sections of a classified balance sheet; use ratios to evaluate a company’s profitability, liquidity, and solvency. | A FURTHER LOOK AT FINANCIAL STATEMENTS Accounting, Fifth Edition 2 After studying this chapter, you should be able to: Identify the sections of a classified balance sheet. Identify tools for analyzing financial statements and ratios for computing a company’s profitability. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. Use the statement of cash flows to evaluate solvency. Explain the meaning of generally accepted accounting principles. Discuss financial reporting concepts. Learning Objectives Preview of Chapter 2 Accounting Fifth Edition Kimmel Weygandt Kieso The Classified Balance Sheet LO 1 Identify the sections of a classified balance sheet. Presents a snapshot at a point in time. To improve understanding, companies group similar assets and similar liabilities together. Illustration 2-1 Standard Classifications Illustration 2-2 The Classified Balance Sheet LO 1 Illustration 2-2 The Classified Balance Sheet LO 1 The Classified Balance Sheet LO 1 Identify the sections of a classified balance sheet. Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer. Operating cycle is the average time it takes from the purchase of inventory to the collection of cash from customers. Common types of current assets are (1) cash, (2) investments, (3) receivables, (4) inventories, and (5) prepaid expenses. Current Assets The Classified Balance Sheet LO 1 Identify the sections of a classified balance sheet. Companies list current asset accounts in the order they expect to convert them into cash. Current Assets Illustration 2-3 Cash, and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle, are called: Current assets. Intangible assets. Long-term investments. Property, plant, . | A FURTHER LOOK AT FINANCIAL STATEMENTS Accounting, Fifth Edition 2 After studying this chapter, you should be able to: Identify the sections of a classified balance sheet. Identify tools for analyzing financial statements and ratios for computing a company’s profitability. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. Use the statement of cash flows to evaluate solvency. Explain the meaning of generally accepted accounting principles. Discuss financial reporting concepts. Learning Objectives Preview of Chapter 2 Accounting Fifth Edition Kimmel Weygandt Kieso The Classified Balance Sheet LO 1 Identify the sections of a classified balance sheet. Presents a snapshot at a point in time. To improve understanding, companies group similar assets and similar liabilities together. Illustration 2-1 Standard Classifications Illustration 2-2
