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The Balance Sheet and Financial Disclosures


Chapter 1 stressed the importance of the financial statements in helping investors and creditors predict future cash flows. The balance sheet, along with accompanying disclosures, provides relevant information useful in helping investors and creditors not only to predict future cash flows, but also to make the related assessments of liquidity and long-term solvency.

The purpose of this chapter is to provide an overview of the balance sheet and financial disclosures and to explore how this information is used by decision makers.



Describe the purpose of the balance sheet and understand its usefulness and limitations.

Distinguish among current and noncurrent assets and liabilities.

Identify and describe the various balance sheet asset classifications.

Identify and describe the two balance sheet liability classifications.

Explain the purpose of financial statement disclosures.

Explain the purpose of the management discussion and analysis disclosure.

Explain the purpose of an audit and describe the content of the audit report.

Describe the techniques used by financial analysts to transform financial information into forms more useful for analysis.

Identify and calculate the common liquidity and financing ratios used to assess risk.





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