11. Historically, recognition has described a preference for financial reporting such “that possible errors in measurement be in the direction of understatement rather than overstatement of net income and net assets.”
12. Shareholders’ equity is a residual interest or claim—that is, the owners (shareholders) of a firm have a claim on assets
not
required to meet the claims of creditors.
13. The amounts that firms report as received from owners are equal to the amounts the firm received when it originally issued the shares of stock.
14. The balance sheet amount of shareholders’ equity does
not, and is
not
intended to, provide the user of the financial reports with a measure of the market value of common equity.
15. A potential investor can easily ascertain market value of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the number of common shares outstanding, as reported on the balance sheet.
16. One can analyze the financial health of a business from a single financial statement considered in isolation such as the balance sheet.
17. The balance sheet portrays the effects of a firm’s investing and financing decisions.
18. The balance sheet does provides all the information an analyst wants or needs about a firm’s resources and the claims on those resources.
19. Authoritative accounting guidance precludes the recognition of some resources as assets and some obligations as liabilities.
20. The amounts reported on the balance sheet for assets, liabilities, and shareholders’ equity reflect current market conditions.