Balance Sheets

Chapter Map: Balance Sheets

 

Chapter: Introduction

Outsider Perspective: What Do I See?

Insider Perspective:  What’s Behind the Numbers?

Outsider Perspective: How Do I Use the Numbers?

 

 

What Do I See? 

Balance Sheets

Learning objectives and key take-aways


Express Route Video [16 min]

Exercises

Scenic Route Videos:

1. Reporting Dates and Periods  [9 min]

Terms and concepts: Reporting dates and periods; Calendar and fiscal years. Company disclosures: Southwest Airlines, Qantas Airways, and British Airways.

2. Reporting Entity  [12 min]

Terms and concepts: Parents and subsidiaries; Company reporting (parent company reporting); Group reporting (consolidated reporting); Controlling and non-controlling interests. Company disclosures: Southwest Airlines, Qantas Airways, and British Airways.

3. Basis of Presentation  [11 min]

Terms and concepts: Currency; Rounding; Standard setting body. Company disclosures: Southwest Airlines, Qantas Airways, British Airways, and Nintendo.

4. Primary Elements  [14 min]

Terms and concepts: Assets, liabilities, and owners' equity. Balance-sheet equation. Financial leverage. Measurement and recognition. Company disclosures: Southwest Airlines, Qantas Airways, and British Airways.

5. Major Categories  [15 min]

Terms and concepts: Current and noncurrent assets and liabilities. Working capital. Current ratio. Company disclosures: Southwest Airlines, Qantas Airways, and British Airways.

6. Line Items  [31 min]

Assets: Cash and cash equivalents; Receivables; Inventories; Property, plant, and equipment (PP&E) and related asset risks.  Liabilities: Accounts payable; Long-term debt. Owners' equity: Share capital (also known as common stock). Company disclosures: Southwest Airlines, Qantas Airways, and British Airways.

 

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What’s Behind the Numbers? 1

Framing Record Keeping & Reporting

Learning objectives and key take-aways


Express Route Video [12 min]

Big-picture of what’s behind the numbers you see on financial statements. Top down perspective: Accounts, events, measures, entries, and judgments behind the numbers. Balance-sheet equation matrix (BSE matrix): Introduction to the matrix elements- Header, columns, rows and cells. Introduction to Navigating Accounting’s Record-keeping and Reporting Map (R&R Map). Insider and outsider perspectives on what’s behind the numbers.

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What’s Behind the Numbers? 2

Recording Entries Using Balance-Sheet Equation Approach

Learning objectives and key take-aways


  Express Route Video 1 [12 min]

Six-step process for recording entries using the balance-sheet-equation (BSE).

Express Route Video 2 [8 min]

Expands on Steps 1-2 of six-step process by using the Owners' Equity Change (OEC) Map.

Exercises

 

 
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What’s Behind the Numbers? 3

Recording Entries Using Journal Entry Approach

Learning objectives and key take-aways


Express Route Video [13 min]

Process for recording entries using the journal entry (JE) approach with debits, credits, and T-accounts.

Exercises

 


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What’s Behind the Numbers? 4

Accounting Judgments: Basics

Learning objectives and key take-aways


Express Route Video [14 min]

Exercises

Scenic Route Video: 

1. Decision Making Hierarchy [8 min]

Introduction to accounting decision makers: Players in the accounting decision-making hierarchy; Judgment latitude of the players in the hierarchy; Consequences of allowing judgment latitude. 

2. Recognition Decisions [37 min]

Terms and concepts: Recognition definition; Recognition criteria; Examples: Faithful representation, asset and liability recognition, and executory contracts. Company disclosures: Qantas Airways, and British Airways. US GAAP: Recognition criteria differences under US GAAP and IFRS.

3. Measurement Decisions [57 min]

Terms and concepts: Measurement decisions; Fair value; Value in use; Net realizable value; and Adjusted historical cost; Concepts related to adjusted historical cost: useful life, residual value, expected future benefits, depreciable amount, period depreciation, measurement uncertainty, revised expectations, impairment losses. Inventories example. Relevance to investors. Company disclosures: Southwest Airlines, Qantas Airways, and British Airways. US GAAP: differences in US GAAP and IFRS for residual values, impairment losses, and inventories.

4. Classification and Disclosure Decisions [16 min]

Terms and concepts: Classification decisions; Disclosure decisions. Company disclosures: Southwest Airlines, Qantas Airways, and British Airways -Investment and lease classification disclosures; Critical accounting policies disclosures. US GAAP: differences in US GAAP and IFRS disclosure requirements and lease classifications.


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How Do I Use the Numbers? 1

Analyzing Financial Condition: Basics

Learning objectives and key take-aways

 

Express Route Video [14 min]

Exercises

Scenic Route Video: 

1. Financial Leverage [15 min]

Analysis of Intel Corporation’s balance sheet: Financial leverage formula. Leverage consequences. Missing or mis-measured items on balance sheets.

2. Working Capital and Current Ratio [6 min]

Analysis of Intel Corporation’s balance sheet: Working capital. Current ratio.

3. Asset Risks and Expected Returns [34 min]

Terms and concepts: Asset uncertainty; Asset risk; Asset risks and rewards; Asset risks and expected returns; and synonyms. Analysis: Intel Corporation’s balance sheet and asset risk.

 

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How Do I Use the Numbers? 2

Connecting Preparers’ and Users’ Decisions

Learning objectives and key take-aways

 

Express Route Video [12 min]

Exercises

Scenic Route Video: 

1. Decision Framework [8 min]

Introduction to Navigating Accounting’s Conceptual Framework: Three-decision framework: Business decisions, Accounting decisions, and User decisions. Connecting the consequences of user decisions.

2. Reporting Incentives and Challenges [25 min]

Conflicts of interest: Role of accounting reports in incentives. Users’ challenge: How to distinguish honest, competent preparers of accounting reports from fraudulent or otherwise misleading preparers. Adverse selection: Introduction to adverse selection and role of accounting information in avoiding adverse selection.

 

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How Do I Use the Numbers? 3

Factors Driving Dispersion of Measures

Learning objectives and key take-aways

 

Express Route Video [12 min]

Exercises

Scenic Route Video: 

1. Factors Driving the Dispersion of Ideal Measures [25 min]

What are ideal measures? Why study ideal measures? Factors affecting dispersion of ideal measures. Examples: Fair value, Value in use, Historical value.

2. Factors Driving the Dispersion of Actual Measures [19 min]

Additional factors beyond those affecting ideal measures (prior video): Honest errors;  Conflicts of interest; Disciplining mechanisms; Sarbanes Oxley and other reforms.

 

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