The Balance Sheet and Financial Disclosures

Describe the purpose of the balance sheet and understand its usefulness and limitations.The Balance SheetThe purpose of the balance sheet is to report a company’s financial position on a particular date.Limitations: The balance sheet does not portray the market value of the entity as a going concern nor its liquidation value. p Resources such as employee skills and reputation are not recorded in the balance sheet.pUsefulness: p The balance sheet describes many of the resources a company has available for generating future cash flows. p It provides liquidity information useful in assessing a company’s ability to pay its current obligations....
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The Balance Sheet and Financial Disclosures The Balance Sheet and Financial Disclosures 3 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 3-2Learning Objectives Describe the purpose of the balance sheet and understand its usefulness and limitations. 3-3The Balance Sheet The purpose of the balance sheet is to report a company’s financial position on a particular date. Usefulness:Limitations: p The balance sheet describes The balance sheet does notp many of the resources a portray the market value of company has available for the entity as a going concern generating future cash flows. nor its liquidation value. p It provides liquidityp Resources such as information useful in employee skills and assessing a company’s reputation are not recorded ability to pay its current in the balance sheet. obligations. p It provides long-term solvency information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure. 1 3-4 Balance Sheet Claims against resources (Liabilities) Remaining claims Resources accruing to owners (Assets) (Owners’ Equity) 3-5 Learning Objectives Distinguish between current and noncurrent assets and liabilities. Identify and describe the various balance sheet asset classifications. 3-6 FedEx Corporation Balance Sheet 31-May (In millions) 2004 2003 Assets: Current assets: Assets are Cash and cash equivalents $ 1,046 $ 538 Receivables, less allowances 3,027 2,627 probable Spare parts, supplies, and fuel 249 228 future Deferred income taxes 489 416 Prepaid expenses and other 159 132 economic Total current a ssets $ 4,970 $ 3,941 benefits Property and equipment, at cost: Aircraft and rela ted equipment $ 7,001 $ 6,624 obtained or Package handling & ground supportcontrolled by equipment and vehicles 5,296 5,013 Computer & ele ctronic equipment 3,537 3,180 a particular Other 4,477 4,200 entity as a 20,311 19,017 Less accumulated depreciation 11,274 10,317result of past Net property and equipment 9,037 8,700transactions Other long-term assets: Goodwill 2,802 1,063 or events. Prepaid pension cost 1,127 1,269 Intangible and other assets 1,198 412 Total other long-term assets 5,127 2,744 Total Assets ...