ADJUSTING ACCOUNTS AND PREPARING FINANCIAL STATEMENTS参考.ppt

Long-term liabilities include long-term notes payable (net of current amounts due), mortgages payable, and bonds payable. We will look at the accounting for long-term liabilities later in the text. As we have seen, the equity section of the classified balance sheet includes the updated owner’s capital account. Remember that almost all companies publish a classified balance sheet. * The definition of an asset is similar under U.S. GAAP and IFRS and involves three basic criteria: the company owns or controls the right to use the item, the right arises from a past transaction or event, and the item can be reliably measured. Both systems define the initial asset value as historical cost for nearly all assets. The definition of a liability is similar under U.S. GAAP and IFRS and involves three basic criteria: (1) the item is a present obligation requiring a probable future resource outlay, (2) the obligation arises from a past transaction or event, and (3) the obligation can be reliably measured. The current ratio of a company gives us a good indication of the company’s ability to pay its debts when they fall due. The current ratio is calculated by dividing current assets by current liabilities. Limited Brands’ current ratio averaged 2.0 for its fiscal years 2006 through 2009. The current ratio for each of these years suggests that the company’s short-term obligations can be covered with its short-term assets. However, if its ratio were to approach 1.0, Limited may face challenges in covering its liabilities. If the ratio were less than 1.0, current liabilities would exceed current assets, and the company’s ability to pay its short-term obligations could be in serious doubt. Reversing entries are optional. They are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period. The purpose of reversing entries is to simplify a company’s recordkeeping. Let’s see how the accoun