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THE BALANCE SHEET AND

FINANCIAL DISCLOSURES
Chapter 3
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The Balance Sheet
Limitations:
The balance sheet does not
portray the market value of
the entity as a going concern
nor its liquidation value.
Resources such as
employee skills and
reputation are not recorded
in the balance sheet.
Usefulness:
The balance sheet describes
many of the resources a
company has for generating
future cash flows.
It provides liquidity
information useful in
assessing a companys
ability to pay its current
obligations.
It provides long-term
solvency information relating
to the riskiness of a
company with regard to the
amount of liabilities in its
capital structure.
Reports a companys financial position on a particular date.
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Resources
(Assets)
Claims against
resources (Liabilities)
Remaining claims
accruing to owners
(Shareholders Equity)
Classifications
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1. Cash
2. Cash Equivalents
3. Short-term Investments
4. Receivables
5. Inventories
6. Prepaid Expenses
Current Assets
Will be converted
to cash or
consumed within
one year or the
operating cycle,
whichever is
longer.
Current
Assets
Cash equivalents
include certain
negotiable items
such as commercial
paper, money market
funds, and U.S.
treasury bills.
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Noncurrent Assets
1. Investments
2. Property, Plant, &
Equipment
3. Intangible Assets
4. Other Assets
Not expected to
be converted to
cash or
consumed within
one year or the
operating cycle,
whichever is
longer.
Noncurrent
Assets
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Noncurrent Assets
Other Assets
1. Include long-term prepaid
expenses and any noncurrent
assets not falling in one of the
other classifications.
Investments
1. Not used in the operations of the
business.
2. Include both debt and equity securities of
other corporations, land held for
speculation, noncurrent receivables, and
cash set aside for special purposes.
Property, Plant, and Equipment
1. Are tangible, long-lived, and used in the
operations of the business.
2. Include land, buildings, equipment,
machinery, and furniture as well as
natural resources such as mineral mines,
timber tracts, and oil wells.
3. Reported at original cost less
accumulated depreciation (or depletion
for natural resources).
Intangible Assets
1. Used in the operations of the
business but have no physical
substance.
2. Include patents, copyrights, and
franchises.
3. Reported net of accumulated
amortization.

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Current Liabilities
1. Accounts Payable
2. Notes Payable
3. Accrued Liabilities
4. Unearned Revenues
5. Current Maturities
of Long-Term Debt
Obligations expected to be
satisfied through current
assets or creation of other
current liabilities within one
year or the operating cycle,
whichever is longer.
Current
Liabilities
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Long-term Liabilities
1. Long-term Notes
2. Mortgages
3. Long-term Bonds
4. Pension Obligations
5. Lease Obligations
Obligations that
will not be
satisfied within
one year or
operating cycle,
whichever is
longer.
Long-Term
Liabilities
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(In millions) January 30, 2009 February 1, 2008
Stockholders' equity
Preferred stock and capital in excess of
$.01 par value; shares issued and
outstanding: none - $ - $
Common stock and capital in excess of
$.01 par value; shares authorized: 7,000;
shares issued: 3,338 and 3,320, respectively;
shares outstanding: 1,944 and 2,060,
respectively 11,189 10,589
Treasury stock, at cost: 919 and 785 shares,
respectively (27,904) (25,037)
Retained earnings 20,677 18,199
Accumulated other comprehensive income
(loss) 309 (16)
Total stockholders' equity 4,271 $ 3,735 $
Dell Inc.
Balance Sheet
Shareholders equity is the residual interest in the
assets of an entity that remains after deducting
liabilities.
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U. S. GAAP vs. IFRS
Does not specify a minimum
list of items to be presented in
the balance sheet.
Some U.S. companies use the
statement of financial position
title as well.
Presents current assets and
liabilities before noncurrent
assets and liabilities.
There are more similarities than differences in balance
sheets prepared per U.S. GAAP vs. IFRS.
Some differences:
Specifies a minimum list of
items to be presented in the
balance sheet.
Statement title changed to
statement of financial position.
Does not prescribe the format
of the balance sheet, but
balance sheets prepared using
IFRS often report noncurrent
items first.
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British Airways
Balance Sheet
At March 31, 2009
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Disclosure Notes
Summary of
Significant
Accounting Policies
Conveys valuable information
about the companys choices from
among various alternative
accounting methods.
Subsequent Events
A significant development that
occurs after the companys fiscal
year-end but before the financial
statements are issued or available
to be issued.
Noteworthy Events
and Transactions
Transactions or events that are
potentially important to evaluating
a companys financial statements,
e.g., related parties, errors and
irregularities, and illegal acts.
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Management Discussion and Analysis
Provides a biased but
informed perspective of
a companys
operations, liquidity,
and capital resources.
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Managements Responsibilities
Preparing the financial
statements and other
information in the annual
report.

Maintaining and assessing the
companys internal control
procedures.
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Auditors Report
Expresses the auditors opinion
as to the fairness of
presentation of the financial
statements in conformity with
generally accepted accounting
principles.
Auditors reports must comply
with specifications of the Public
Companies Accounting
Oversight Board (PCAOB).
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Auditors Opinions
Unqualified
Issued when the financial statements
present fairly the financial position,
results of operations, and cash flows
are in conformity with GAAP.
Qualified
Issued when there is an exception that
is not of sufficient seriousness to
invalidate the financial statements as a
whole.
Adverse
Issued when the exceptions are so
serious that a qualified opinion is not
justified.
Disclaimer
Issued when insufficient information
has been gathered to express an
opinion.
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Compensation of Directors and
Top Executives
Proxy Statement Information
Summary Compensation Table
Salary
Bonus
Stock Awards
Option Awards
Other Compensation
A proxy statement is sent each year
to all shareholders, usually in the
same mailing with the annual
report.
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Using Financial Statement Information
Comparative Financial
Statements
Allow financial statement users to
compare year-to-year financial
position, results of operations, and
cash flows.
Horizontal Analysis
Expresses each item in the
financial statements as a
percentage of that same item in the
financial statements of another
year (base amount).
Vertical Analysis
Involves expressing each item in
the financial statements as a
percentage of an appropriate
corresponding total, or base
amount, within the same year.
Ratio Analysis
Allows analysts to control for size
differences over time and among
firms.
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Liquidity Ratios
=
Current ratio
Current assets
Current liabilities
Measures a companys ability to satisfy its
short-term liabilities
= Acid-test ratio
Quick assets
Current liabilities
Provides a more stringent indication of a
companys ability to pay its current
liabilities
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Financing Ratios
=
Debt to equity
ratio
Total liabilities
Shareholders equity
Indicates the extent of reliance on
creditors, rather than owners, in providing
resources
=
Times interest
earned ratio
Net income + Interest
expense + Income taxes
Interest expense
Indicates the margin of safety provided to
creditors