Chapter 3 Chapter 3The Balance Sheet and Financial Disclosures Balance sheet (Statement of financial position): a position statement

that presents an organized list of assets, liabilities, and equity at a particular point in time Book value: assets minus liabilities as shown in the balance sheet Does not show a companys market value Liquidity: period of time before an asset is converted to cash or until a liability is paid Long-term solvency: the riskiness of a company with regard to the amount of liabilities in its capital structure The risk to an investor or creditor increases as the percentage of liabilities, relative to equity, increases Classifications Assets Current assets: include cash and other assets that are reasonably expected to be converted into cash or consumed within the coming year, or within the normal operating period Cash equivalents: include certain negotiable items such as commercial paper, money market funds, and U.S. treasury bills (highly liquid) Short-term investments Accounts receivable: result from the sale of goods or services on credit When supported by a formal written agreement they are called notes receivable Inventories: include goods awaiting sale (finished goods), goods in the course of production (WIP) mad goods to be consumed directly or indirectly in production (raw materials) Prepaid expense: represents an asset recorded when an expense is paid in advance, creating benefits beyond the current period Noncurrent assets Investments Property, plant, and equipment Intangible assets Liabilities Current liabilities Accounts payable: are obligations to suppliers of merchandise or of services purchased on open account, with payment usually due in 30 to 60 days Notes payable: