Join Earl Kay Stice for an in-depth discussion in this video Limitations of the balance sheet, part of Accounting Foundations.
All right, I'm a little embarrassed to tell you this,…but I got to tell you the whole truth.…The balance sheet is not perfect.…There are some limitations.…So I better tell you what those are.…Better that you hear it from me than from…somebody else.…First, when you look at a balance sheet,…most of the numbers that you see are not…market values, they're costs.…You say, "Well what's the big deal?"…Well, it can be a huge deal.…Let's say you've got a company that has…some land that it bought 50 years ago…for $5,000.…All right.…
And the land now, 50 years later, is worth…two million dollars.…Well, what's going to be reported…on the balance sheet?…The amount reported on the balance sheet…is the original cost, the $5,000 50 years ago,…not the current market value.…This often misleads people because when they…look at the balance sheet they trust…the balance sheet, they love the balance sheet.…They have to remind themselves, "This is not…"the current values, these are the costs.…"If I want to know the current value…"of all the assets, I need to do some other…
- What is accounting?
- Working with balance sheets and income statements
- Determining the costs of products
- Performing break-even analysis
- Determining average and marginal tax rates
- Understanding tax deductions and credits
Skill Level Appropriate for all
1. Basics of Accounting
2. Financial Accounting
3. Managerial Accounting
4. Income Taxes
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