Analysis Of The Balance Sheet

The Balance Sheet
Wealth = Present Value of Resources – Present Value of Obligations
Note - Present value is not the only measurement basis used on the balance sheet.

Presentation can be past, current, or future oriented, each of which have supporters, based on their benefits and critics, based on their weaknesses.

The Balance Sheet Elements
• Assets – Characteristics = A probable future economic benefit, the company has control over others access to the benefit, and the event that gives the company right over the asset has occurred.
• Liabilities – Characteristics = A duty or responsibility of the company that establishes a probable future transfer or use of assets, it is unlikely that the company can avoid the future transfer, and the

assets held for resale, as covered in the Chapter 6 outline).

Liabilities
Current Liabilities – Includes short-term payables and the current portion of long-term debt. Current liabilities are measured at their liquidation value.

Long-Term and Other Liabilities – Recorded at the amount of consideration received, with premiums or discounts being amortized over the life of the obligation.

Asset & Liability Valuation – Although net assets and net liabilities can be calculated, users should be aware that the valuation methods used with in each of these sections of the balance sheet are inconsistent.

Equity
Common Stock – Various types of common stock, with varying rights, may be available; however, through the use of the paid-in-capital and additional- paid in capital accounts, they would all be recorded at historical cost (or proceeds from the sale).
Preferred Stock – Also recorded at cost.
Treasury Stock – Recorded at the historical cost to reacquire.
Retained Earnings and Other Comprehensive Income – Captures the residual value of assets minus liabilities. Retained earnings can be appropriated for a specific