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3.5 FINANCIAL ASSETS and LIABILITIES Definitions 1. Financial Assets Include Cash, Equity Instruments of Other Entities
128 SU 3: Financial Accounting I 3.5 FINANCIAL ASSETS AND LIABILITIES Definitions 1. Financial assets include cash, equity instruments of other entities (e.g., preference shares), contract rights to receive cash or other financial assets from other entities (e.g., accounts receivable), etc. 2. Financial liabilities include obligations to deliver cash or another financial asset (e.g., bonds or accounts payable), obligations to exchange financial instruments under potentially unfavorable conditions (e.g., written options), etc. Initial Recognition 3. A financial asset or liability is initially recognized only when the entity is a party to the contract. Thus, contract rights and obligations under derivatives are recognized as assets and liabilities, respectively. a. A firm commitment to buy or sell goods or services ordinarily does not result in recognition until at least one party has performed. 1) However, certain contracts to buy or sell a nonfinancial item may result in recognition of an asset or liability. a) For example, a firm commitment to buy a commodity in the future that (1) can be settled in cash and (2) is not held for the purpose of receiving the commodity is treated as a financial instrument. Accordingly, its net fair value is recognized at the commitment date. b) If an unrecognized firm commitment is hedged in a fair value hedge,a change in its net fair value related to the hedged risk is recognized as an asset or liability. 4. An issuer of a financial guarantee initially recognizes a liability and measures it at fair value. Subsequent measurement is at the greater of (a) the amount based on accounting for provisions or (b) the amortized amount. -
Fixed Asset Inventory System
PROCEDURES MANUAL FIXED ASSET INVENTORY SYSTEM FOR COUNTY BOARDS OF EDUCATION IN THE STATE OF WEST VIRGINIA Office of School Finance West Virginia Department of Education PROCEDURES MANUAL FIXED ASSET INVENTORY SYSTEM FOR COUNTY BOARDS OF EDUCATION IN THE STATE OF WEST VIRGINIA Revised July 16, 2001 Copies may be obtained from: West Virginia Department of Education Office of School Finance Building 6, Room 215 1900 Kanawha Boulevard E. Charleston, West Virginia 25305 FIXED ASSET INVENTORY SYSTEM PROCEDURES MANUAL FOREWORD Allocating, operating, and accounting for the physical assets of a school system are among the most important responsibilities of school administrators. Expenditures for fixed assets are generally the most visible costs a school district incurs. Yet, the accounting for such assets, once acquired, has generally received little attention. Implementation of a fixed asset inventory accounting system will enable local education agencies to maintain an inventory of all assets, including those purchased with federal funds. In addition, the system will assist all agencies in obtaining an unqualified opinion on their audited financial statements, and will assign responsibility and accountability for the security of fixed assets. The system can also be used for purposes of insurance and proof of loss. This manual has been developed by the West Virginia Department of Education in order to provide uniform standards throughout the State for all county boards of education, regional education service agencies, and multi-county vocational centers to use in developing a fixed asset inventory accounting system. The manual prescribes the minimum requirements that are to be encompassed in establishing such a system, and provides a list of the codes that are to be used in classifying fixed assets. -
Glossary of Financial Terms
GLOSSARY OF FINANCIAL TERMS Balance sheet The balance sheet sets out the assets and liabilities of a business and its net worth. Bottom line The closing cash balance, which then becomes the next month’s opening balance and provides the basis for comparison with the firm’s monthly cash-book total. Current assets Assets used or turned over within 12 months: cash in hand or at the bank, debtors and work in progress. Current liabilities Liabilities that need to be met regularly or within the current reporting year. They may include trade creditors, disbursements, bank overdrafts, lease or hire purchase payments and accrued expenses such as annual leave and insurance. Disbursements Client disbursements can be both an income and an expenditure component. Over a period these will be the same, apart from a small net outflow due to growth of the practice and increasing charges. Investing activities This category refers primarily to the cash flow of sales and purchases of assets relating to the business. An example of an inflow of revenue from an investing activity is the sale of an office, property or equipment. An outflow would be the purchase of such assets. Fees or income Cost basis when fees paid for legal services. Accruals when invoice raised for legal service. Financing activities This category relates to such things as the borrowing and repaying of loans, and returning investments to investors. Financial performance statement Also known as a profit and loss statement; shows all income and expense accounts over time while indicating profitability over the same period. The main items shown on a financial performance statement for a legal practice are: fees or income operating expenses net profit before tax provision for income tax net profit after tax. -
Speech: What Is an Asset?, January 12, 1993
For Release January 8, 1993 Walter P. Schuetze Chief Accountant Securities and Exchange Commission American Institute of Certified Public Accountants' Twentieth Annual National Conference on CUrrent SEC Developments , < i January 12, 1993 What is an Asset? The Securities and Exchange commission, as a matter of policy, disclaims responsibility for any publication or statement by its employees. The views expressed herein are those of Mr. Schuetze and do not necessarily reflect the views of the Commission or the other staff of the Commission. What is an Asset? I am pleased to make my second appearance on the program of this annual national conference on current SEC developments. The year gone by has been one where the staff has concentrated on promoting the Commission's drive for mark-to-market accounting for marketable debt and equity securities. That policy was set out in Congressional testimony in september 1990 by Chairman Breeden and in December 1990 by James Doty, the Commission's.former General Counsel. We have continued to encourage the Financial Accounting standards Board, and the financial community in general, to embrace the idea of mark-to-market for marketable securities. contrary to the perception by some, we have not been promoting mark-to-market for other assets, such as plant and equipment, pa tents and copyrights, or commercial loans held by banks. What the staff has done, however, is to suggest the idea that, when one is looking to identify impairment of the carrying amount of assets such as stocks, bonds, loans, plant, and patents, it is appropriate to look at the fair value of the asset and compare that fair value to the carrying amount of the asset. -
An Introduction to Basic Farm Financial Statements: Balance Sheet
W 884 An Introduction to Basic Farm Financial Statements: Balance Sheet Victoria Campbell, Extension Intern S. Aaron Smith, Associate Professor Christopher N. Boyer, Associate Professor Andrew P. Griffith, Associate Professor Department of Agricultural and Resource Economics The image part with relationship ID rId2 was not found in the file. Introduction Basic Accounting Overview To begin constructing a balance sheet, we Tennessee agriculture includes a diverse list need to first start with the standard of livestock, poultry, fruits and vegetables, accounting equation: row crop, nursery, forestry, ornamental, agri- Total Assets = Total Liabilities + Owner’s tourism, value added and other Equity nontraditional enterprises. These farms vary in size from less than a quarter of an acre to The balance sheet is designed with assets on thousands of acres, and the specific goal for the left-hand side and liabilities plus owner’s each farm can vary. For example, producers’ equity on the right-hand side. This format goals might include maximizing profits, allows both sides of the balance sheet to maintaining a way of life, enjoyment, equal each other. After all, a balance sheet transitioning the operation to the next must balance. generation, etc. Regardless of the farm size, enterprises and objectives, it is important to keep proper farm financial records to improve the long- term viability of the farm. Accurate recordkeeping and organized financial statements allow producers to measure key financial components of their business such A change in liquidity, solvency and equity can as profitability, liquidity and solvency. These be found by comparing balance sheets from measurements are vital to making two different time periods. -
Earnings Per Share. the Two-Class Method Is an Earnings Allocation
Earnings Per Share. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities, according to dividends declared and participation rights in undistributed earnings. Under this method, net earnings is reduced by the amount of dividends declared in the current period for common shareholders and participating security holders. The remaining earnings or “undistributed earnings” are allocated between common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Once calculated, the earnings per common share is computed by dividing the net (loss) earnings attributable to common shareholders by the weighted average number of common shares outstanding during each year presented. Diluted (loss) earnings attributable to common shareholders per common share has been computed by dividing the net (loss) earnings attributable to common shareholders by the weighted average number of common shares outstanding plus the dilutive effect of options and restricted shares outstanding during the applicable periods computed using the treasury method. In cases where the Company has a net loss, no dilutive effect is shown as options and restricted stock become anti-dilutive. Fair Value of Financial Instruments. Disclosure of fair values is required for most on- and off-balance sheet financial instruments for which it is practicable to estimate that value. This disclosure requirement excludes certain financial instruments, such as trade receivables and payables when the carrying value approximates the fair value, employee benefit obligations, lease contracts, and all nonfinancial instruments, such as land, buildings, and equipment. -
Reading and Understanding Nonprofit Financial Statements
Reading and Understanding Nonprofit Financial Statements What does it mean to be a nonprofit? • A nonprofit is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. • The mission of the organization is the main goal, however profits are key to the growth and longevity of the organization. Your Role in Financial Oversight • Ensure that resources are used to accomplish the mission • Ensure financial health and that contributions are used in accordance with donor intent • Review financial statements • Compare financial statements to budget • Engage independent auditors Cash Basis vs. Accrual Basis • Cash Basis ▫ Revenues and expenses are not recognized until money is exchanged. • Accrual Basis ▫ Revenues and expenses are recognized when an obligation is made. Unaudited vs. Audited • Unaudited ▫ Usually Cash Basis ▫ Prepared internally or through a bookkeeper/accountant ▫ Prepared more frequently (Quarterly or Monthly) • Audited ▫ Accrual Basis ▫ Prepared by a CPA ▫ Prepared yearly ▫ Have an Auditor’s Opinion Financial Statements • Statement of Activities = Income Statement = Profit (Loss) ▫ Measures the revenues against the expenses ▫ Revenues – Expenses = Change in Net Assets = Profit (Loss) • Statement of Financial Position = Balance Sheet ▫ Measures the assets against the liabilities and net assets ▫ Assets = Liabilities + Net Assets • Statement of Cash Flows ▫ Measures the changes in cash Statement of Activities (Unaudited Cash Basis) • Revenues ▫ Service revenues ▫ Contributions -
Example of Internally-Prepared Financial Statements
EXAMPLE OF INTERNALLY-PREPARED FINANCIAL STATEMENTS Balance Sheet (also called a Statement of Financial Position) summarizes the assets, liabilities and net assets of the organization at a specified date. It is a snapshot of the organization’s financial position on that date. Statement of Income and Expenses (also called a Statement of Operations) reports the organization’s financial activity over the year. It shows income minus expenses, which results in either a profit or a loss. ABC Company Balance Sheet As of March 31, 2015 2015 2014 ASSETS Current Assets: Cash 5,000 5,200 Account Receivable 4,000 3,200 Inventory 3,000 5,000 Prepaid Expenses 3,850 - Capital Assets (equipment) 13,000 14,000 TOTAL ASSETS 28,850 27,400 LIABILITIES Current Liabilities: • Accounts Payable and Accrued Liabilities 9,500 9,200 • Other Current Liabilities 3,500 500 • Current portion of Deferred Capital Contributions 1,000 1,000 Deferred Capital Contributions 9,000 10,000 TOTAL LIABILITIES 23,000 20,700 Net Assets Internally restricted 6,000 6,000 Externally restricted 4,000 4,000 Unrestricted (4,150) (3,300) $5,850 6,700 Total Liabilities and Net Assets $28,850 27,400 ABC Company Statement of Income and Expenses For the year ending March 31, 2015 2015 2014 REVENUE Registration fees 10,000 13,800 Grant – City of YZ 12,800 5,000 Donations and Sponsorships 5,000 4,800 Fundraising 3,500 2,410 Equipment 2,300 1,000 TOTAL REVENUE 33,600 27,010 EXPENSES Program costs 11,200 10,000 Advertising and promotion 8,400 9 ,000 Professional fees 8,500 6,000 Fundraising 2,300 1, 01 0 Insurance 1,800 2,000 Office/administration - TOTAL EXPENSES 34,450 28,010 Excess (deficit) of revenue over (850) (1,000) expenses for the year Net assets, beginning of year 6,700 7 ,700 Excess (deficit) of revenue over (850) (1,000) expenses for the year Net assets, end of year 5,850 6 ,700 ANOTHER EXAMPLE OF INTERNALLY-PREPARED FINANICAL STATEMENTS Balance Sheet (also called a Statement of Financial Position) summarizes the assets, liabilities and net assets of the organization at a specified date. -
Statement of Cash Flows
Title: Statement of Cash Flow Speaker: Christina Chi online.wsu.edu Cash vs. Accrual Accounting Cash basis accounting Recognizes revenue when cash is received and expenses when cash is paid Beginning cash + cash revenue – cash payments = ending cash Accrual basis accounting Recognizes revenue when earned and expenses when incurred Overview of Financial Statements Balance sheet provides a point-in-time statement of overall financial position of a hotel - “snapshot” of financial health of a hotel Income statement Assess hotel’s operating performance over a period of time Reports the profitability of a hotel’s operating activities Prepared on accrual basis accounting and include noncash revenues & expenses Neither can answer questions regarding cash inflows and outflows during an operating period Purpose of Statement of Cash Flows Report and identify the effects of cash receipts and cash disbursements on hotel’s business activities during a period of time Allows an evaluation of hotel’s liquidity & solvency Provides basis for the evaluation of managers’ performance on cash management Provides basis for cash budgeting Provides a foundation to predict hotel’s future cash flows Cash Flow Activity Levels Operating activities Relate to hotel’s primary revenue generating activities; such activities are usually included in determining income. Investing activities Include buying and selling fixed assets, buying and selling securities/investments not classified as cash equivalents, etc. Financing activities Include borrowing -
Classification of Land by Real Estate Developer
PHILIPPINE INTERPRETATIONS COMMITTEE (PIC) QUESTIONS AND ANSWERS (Q&A) Q&A No. 2018-11 Issue What is the correct classification of the land owned by real estate developer? Classification of land by real estate developer Background A real estate developer develops residential and commercial units which are sold or leased out to customers. These projects can be horizontal or vertical projects which are either: (a) units in a high-rise building which can be for office or residential use; (b) serviced lot; or (c) serviced lot and house. Projects can be in a single phase or in multiple phases and usually take more than one year to complete (e.g. 3-5 years). In the normal course of its business, the real estate developer purchases the following raw land: Land A - The entity has plans to construct and develop the parcel of land as a residential subdivision for sale as approved by the entity’s Board of Directors. The preparation of the master plan, detailing the plans as residential property, has commenced but the entity intends to start the physical construction activities (e.g. excavation) two years from the government approval of the master plan. Land B –The entity has plans to construct and develop the parcel of land as a residential subdivision for sale as approved by the entity’s Board of Directors. The preparation of the master plan, detailing the plans, has not commenced. Land C - The entity intends to develop the land into a commercial center for lease but preparation of master plan has not commenced and the entity does not intend to commence the physical construction activities within the year. -
Balance Sheet 101 by Mark Snyder | Focuscfo
Balance Sheet 101 By Mark Snyder | FocusCFO Accounting is the language of business, but unfortunately, it’s confusing almost to the point of mystifying to the layperson. A company’s balance sheet is one of the most important financial statements, yet many people don’t understand the “how” and “why” behind its purpose and structure. The purpose of the balance sheet is simple, it is merely a summary, at a point in time, of what a company owns [assets], owes [liabilities] and net worth [equity]. Why is it organized in such a weird way where the total Assets equals the total of Liabilities plus Equity? Wouldn’t it make more sense to have your Assets less your Liabilities equal your Equity? Accounting is based on the key concept of double entry bookkeeping in which debits have to equal credits. This key principle of balancing debits and credits hews well to the concept of a balance sheet and makes perfect sense to an accounting professional. Assets and Liability The asset and liability portions of the balance sheet are organized between current and non- current sections. Anything in the current section is something that will impact cash in 12 months or less. For example, accounts receivable is considered a current asset as it should be collected as cash within 12 months. Conversely accounts payable is considered a current liability as the amount will be paid to the vendor out of the company’s cash balance within the next 12 months. Working Capital The essence of the balance sheet is highlighting the working capital of a company. -
Valuation Models Routledge
Valuation Models: An Issue of Accounting Theory Stephen H. Penman Columbia Business School, Columbia University The last 20 years has seen a significant development in valuation models. Up to the 1990s, the premier model, in both text books and practice, was the discounted cash flow model. Now alternative models based on earnings and book values―the so-called residual earnings model and the abnormal earnings growth model, for example―have come to the fore in research and have made their way into the textbooks and into practice. At the same time, however, there has been a growing skepticism, particularly in practice, that valuation models don’t work. This finds investment professionals reverting to simple schemes such as multiple pricing that are not really satisfactory. Part of the problem is a failure to understand what valuations models tell us. So this paper lays out the models and the features that differentiate them. This understanding also exposes the limitations of the models, so skepticism remains―indeed, it becomes more focused. So the paper identifies issues that have yet to be dealt with in research. The skepticism about valuation models is not new. Benjamin Graham, considered the father of value investing, appeared to be of the same view: The concept of future prospects and particularly of continued growth in the future invites the application of formulas out of higher mathematics to establish the present value of the favored issue. But the combination of precise formulas with highly imprecise assumptions can be used to establish, or rather justify, practically any value one wishes, however high, for a really outstanding issue.