Chapter 1 Financial Statements and Business Decisions.docx

5 Pages
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Department
Accounting & Financial Management
Course Code
AFM 101
Professor
Donna Psutka

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Chapter 1: Financial Statements and Business Decisions 9/13/2013 8:26:00 AM Assets: - economic benefit (does it contribute to cash, do we control it, and benefits expected in the future) - Need to measure its financial value reliably (market value?) - To recognize an asset, there must be a dollar value to it - If you lease a car, you don’t actually own it, so the prepayment for the car (prepaid expenses) is an asset but the car itself isn’t Asset Measurement: A thousand objective measurements experts have agreed to measure the financial value of the assets identified earlier for a representative people What will experts need to know to measure the financial value of the asset? How much uncertainty? Cash Questions: How much in your bank? How much on hand? Cash on hand not in wallet? What currency? Does anybody owe you cash? Bank overdraft? - dispersion  small – cash, DVDs, books  medium – cars, homes  large – human capital, patents - Would the dispersion associated with Intel’s internally developed patent be closer to cash, car or human capital of a student (human capital) Liabilities: - obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefit - to be recognized on the balance sheet:  Meet the definition of the liabilities  Be probable  Measure its financial value reliably Liability Measurement - the dispersion of objective experts’ estimate of the values of liabilities can differ greatly  dispersion: o small – credit cards, parking fines, utilities and taxes o medium – college loans, car loans and leases, home mortgages o large: repay family member, com
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