Balance Sheet Fundamentals. Balance Sheet describes liquidity and solvency. Limitations: Historical Cost—may be reliable but not relevant Judgment for some accounts—management can influence account balances through judgment Omits some “assets” (like value of employee knowledge)
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Balance Sheet elements:
Assets that are:
Any restrictions must be disclosed (e.g. minimum deposits).
Tangible property used for operations:
Most assets are depreciable (except land).
Lack physical substance, but still hold value:
Obligations to be paid off using current assets.
Current Assets – Current Liabilities = Working Capital
Represents relatively liquid available resources
Obligations to be paid off past current operating cycle.
Owners’ residual claim to the firm.