Chapter Map: Balance Sheets
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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