Page 95 - Accounting Principles (A Business Perspective)

2. Recording business transactions

(Decrease) Total Assets
2000 over 1999 October 31
2000 1999 Dollars Percent 2000 1999
Assets (in millions)
Current assets:
Cash and cash equivalents $ 3,415 $ 5,411 $ (1,996) -37% 10.0% 15.3%
Short-term investments 592 179 413 231% 1.7% 0.5%
Accounts receivable 6,394 5,958 436 7% 18.8% 16.9%
Financing receivables 2,174 1,889 285 15% 6.4% 5.4%
Inventory 5,699 4,863 836 17% 16.8% 13.8%
Other current assets 4,970 3,342 1,628 49% 14.6% 9.5%
Total current assets $ 23,244 $ 21,642 $ 1,602 7% 68.3% 61.3%
Property, plant and equipment:
Property, plant and equipment, net 4,500 4,333 167 4% 13.2% 12.3%
Long-term investments and
other non-current assets 6,265 9,322 (3,057) -33% 18.4% 26.4%
Total assets $ 34,009 $ 35,297 $ (1,288) -4% 100.0% 100.0%
Management performs horizontal and vertical analyses along with other forms of analysis to help evaluate the
wisdom of its past decisions and to plan for the future. Other data would have to be examined before decisions
could be made regarding the assets shown. For instance, if you discovered the liabilities that would have to be paid
within a short time by Hewlett-Packard were more than USD 30 billion, you might conclude that the company is
short of cash even though current assets increased substantially during 2000. We illustrate horizontal and vertical
analyses to a much greater extent later in the text.

An accounting perspective:

Business insight

Many companies have been restructuring their organizations and reducing the number of
employees to cut expenses. General Motors, AT&T, IBM, and numerous other companies have
taken this action. One could question whether companies place as much value on their employees

as in the past. In previous years it was common to see the following statement in the annual reports
of companies: "Our employees are our most valuable asset". Companies are not permitted to show
employees as assets on their balance sheets. Do you think they should be allowed to do so?

What you have learned in this chapter is basic to your study of accounting. The entire process of accounting is
based on the double-entry concept. Chapter 3 explains that adjustments bring the accounts to their proper balances
before accurate financial statements are prepared.

Understanding the learning objectives
• An account is a storage unit used to classify and summarize money measurements of business activities of a
similar nature.
• A firm sets up an account whenever it needs to provide useful information about a particular business item
to some party having a valid interest in the business.

• A T-account resembles the letter T.
• Debits are entries on the left side of a T-account.
• Credits are entries on the right side of a T-account.

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