UNDERSTANDING FINANCIAL STATEMENTS - PowerPoint PPT Presentation

Loading...

PPT – UNDERSTANDING FINANCIAL STATEMENTS PowerPoint presentation | free to download - id: 7a11c8-MDFmM



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

UNDERSTANDING FINANCIAL STATEMENTS

Description:

UNDERSTANDING FINANCIAL STATEMENTS BALANCE SHEET Liabilities & Stockholders Equity – PowerPoint PPT presentation

Number of Views:75
Avg rating:3.0/5.0

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: UNDERSTANDING FINANCIAL STATEMENTS


1
UNDERSTANDING FINANCIAL STATEMENTS
  • BALANCE SHEET Liabilities Stockholders
    Equity

2
LIABILITIES
  • Liabilities- probable future sacrifices of
    economic benefits arising from present
    obligations of a particular entity to transfer
    assets or provide services to other entities in
    the future, as a result of past transactions or
    events.
  • May be CURRENT or LONG-TERM -- same criteria of
    one-year or operating cycle, whichever is
    longer

3
Current Liabilities
  • Accounts Payable
  • Short-term Notes Payable
  • Accrued Liabilities
  • Unearned Revenues (Deferred Credits)
  • Current Maturity Portion of Long-term Debt
  • Deferred Taxes

4
Long-Term Liabilities
  • Notes or Mortgages Payables
  • Bonds Payable
  • Leases Payable (capital leases)
  • Pension Obligations
  • Post-retirement benefits other than pensions
  • Deferred Taxes
  • Warranty Obligations
  • Contingencies Payable

5
Accounts Payable
  • Usually defined as obligations arising from
    purchases of merchandise for resale or of raw
    materials
  • Few valuation or reporting issues
  • Significant changes from period to period often
    result from changes in sales volume

6
Short-Term Notes Payable
  • Promissory notes due within a year (or operating
    cycle if more appropriate)
  • Usually are interest-bearing
  • Usually reported at face value because of
    short-term nature

7
Accrued Liabilities
  • Result from accrual basis of accounting
  • Represent expenses that have been INCURRED and
    thus ACCRUED, but have NOT BEEN PAID in cash
  • Examples are Interest Payable and Wages Payable

8
Unearned Revenue
  • Examples
  • Unearned rent revenue
  • Advances from customers
  • Sometimes called deferred credits
  • Results from a prepayment received in advance for
    services or products
  • Under accrual accounting, revenue is recognized
    when EARNED, not when received in cash -- in this
    case, cash flow precedes revenue recognition

9
Current Maturities - LT Debt
  • Represent principal payments (not interest) on
    debt that are due within one year
  • Includes principal payments on notes, mortgages,
    bonds, leases

10
Long-term Liabilities
  • Notes or Mortgages Payable
  • Bonds Payable
  • Leases Payable (Capital Leases Payable) -
    recorded at the present value of expected future
    cash outflows starting when the lease begins (PPE
    will also be recorded)
  • (Operating leases are recorded as lease expense
    and no liability nor PPE are recorded)
  • Pension Obligations - reported at the present
    value of expected future cash outflows
  • Warranty Obligations - Represent estimated
    liability of a firm to repair or replace
    merchandise that it sells

11
Long-term Liabilities
  • Postretirement benefits other than pensions
  • An estimate of the obligation for paying medical
    insurance premiums or medical expenses of retired
    employees and spouses.
  • These future benefits are accrued as the
    employees are working for the company.

12
Long-term Liabilities
  • Contingencies potential liabilities such as
    possible losses assessed in a lawsuit
  • If the loss is probable, then record the
    liability and loss and disclose in a footnote. If
    the loss is not estimable, then do not record the
    liability and loss, but must disclose in a
    footnote.
  • If the loss reasonably possible, then do not
    record the liability and loss, but must disclose
    in a footnote.
  • If remote, then do not record, must not
    disclose.

13
Deferred Income Taxes
  • Taxes paid are based on taxable income on Tax
    Return
  • Tax expense reported on income statement is based
    on FINANCIAL Income Statement
  • Deferred Income Taxes result from TIMING
    (temporary) differences in taxable and financial
    statement income
  • Classification may be current or long-term
    depending on the asset or liability underlying
    the temporary difference
  • Examples
  • depreciation
  • pension expense
  • installment sale accounting

14
OWNERS EQUITY
  • Forms of business contrasted as to owners equity
    section.
  • a. Proprietorship report owners equity as a
    single capital account.
  • b. Partnership report separate capital account
    for each partner.
  • c. Capital account reflects all changes
    investments, withdrawals, earnings, and losses.
  • d. Corporations report stockholders equity,
    including contributed capital and retained
    earnings.

15
STOCKHOLDERS EQUITY
  • Common stock, at par value
  • Preferred stock
  • Additional Paid-in Capital (also called Paid- in
    Capital in Excess of Par)
  • Retained Earnings
  • Accumulated Other Comprehensive Income
  • Less Treasury Stock (at cost)
  • Total Stockholders Equity

16
Common Stock and Additional Paid-In Capital
  • Common stock represents ownership of the company
  • Voting privileges
  • No fixed return (no required dividend rate)
  • But over the companys lifetime the common stock
    dividends should be higher than the preferred
    stock dividends
  • Must disclose par value and number shares
  • Authorized
  • Issued
  • Outstanding

17
Preferred Stock
  • No voting privileges
  • If company terminates, then their investment is
    returned before the common stockholders
  • Stated dividend rate (i.e., 8)
  • Usually annual dividend is not required, but when
    dividends are declared by B of D, then the
    current year preferred stock dividends would be
    paid before the common stock dividends.
  • If cumulative preferred stock, then missed
    dividends (called dividends in arrears) would be
    paid first when dividends are declared by B of D.
  • If redeemable preferred stock (preferred
    stkhlders are repaid their investment after a
    stated period, like bonds), then the company is
    not allowed to show in SE section (show between
    liabilities and SE section.

18
Retained Earnings
  • Represents the cumulative undistributed earnings
    of the business since its inception
  • Accumulated net income (net loss) less dividends
    declared since inception
  • Current year detail is shown in Statement of
    Retained Earnings (Beg. RENet Income-Dividends
    declared Ending RE)
  • Only Ending RE balance is shown on BS

19
Treasury Stock
  • Repurchased shares of stock to be retained and
    possibly reissued later is called Treasury Stock.
  • The stock may be repurchased
  • To distribute the stock to employees under stock
    option plans or retirement plans.
  • To prevent a hostile takeover.

20
Treasury Stock
  • The repurchase of a companys own stock can be
    accounted for by one of two methods
  • (1) At Cost Method (the amount paid to
    repurchase the stock is shown as a separate line
    item as a subtraction from stockholders equity)
  • (2) Par Value Method (the amount paid to
    repurchase the stock reduces Common Stock and
    Additional Paid-In Capital)
About PowerShow.com