ADM 1340 Chapter 2: Chapter 2

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goldraccoon895

17 Aug 2016

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The classified statement of financial position (balance sheet) Presents a snapshot of a company"s financial position its assets, liabilities and shareholders" equity at a point in time. These classifications help readers determine: whether the company has enough assets to pay its debts as they come due, the claims of short and long term creditors and lenders on the company"s total assets. Definition: are the resources that a company owns or controls that will provide future economic benefits. These include those resources whose benefits will be realized within one year (current assets) and realized over more than one year (non- current assets) Definition: are assets that are expected to be converted into cash or will be sold or used up within one year of the company"s financial statement date or its operating cycle (whichever is longer) Operating cycle is the average time it takes to go from cash to cash in producing revenue (usually less than 1 year)

Related Questions

Here is your first question:

Explain what current assets and fixed assets are and give as many examples as you can for each. What is the difference between tangible and intangible assets?

Liabilities and owner's equity are listed on the right-hand side respectively. Liabilities are also classified as current liabilities and long-term liabilities.

Here is your second question:

Explain what current liabilities differ from long-term liabilities and give as many examples as you can for each.

Owner's equity (also known as shareholders' equity, common equity) is the difference between total value of assets and total value of liabilities. That is, if you were to use your assets to pay off the debts, whatever is left over (the residual) would belong to shareholders. That is why they are known as residual claimants. Hence we have the identity;

Assets = Liabilities + Shareholders' equity

Net working capital is simply equal to current assets minus current liabilities. When net working capital is positive, it means cash that will be available over the next 12 months exceeds what must be paid. It is important for a healthy firm to have positive net working capital.

Here is your third question:

A firm has current assets of $100, net fixed assets of $500, short-term debt of $70 and long-term debt of $200. What is shareholders' equity. Construct a balance sheet

for this company. Is net working capital positive or negative? If so by how much? (Hint: You may utilize Example 2.1 on page 24 of the textbook).

The following is the abridged statement of the financial position of Cromwell Ltd

Assets
Non-current assets
Land & buildings	500,000
Current assets
Cash & cash equivalents	12,000
Total assets	512,000
Equity & Liabilities
Total equity	(130,000)
-Issued capital	320,000
Accumulated loss	(450,000)
Current laibilities
Trade payables	642,000
Total equity & Liabilities	512,000