-
4 Types of Financial Statements
Balance Sheet, Statement of Cash Flows, Statement of Shareholders' equity (Statement of Retained Earnings), Income Statement
-
Heading
- 1. Name of entity (the separate-entity assumption); 2. Title of statement; 3. Specific date
- (financial snapshot at a specific point in time- period for all but balance sheet); 4. Unit measure (thousands of dollars)
-
Basic Accounting Equation
Assets= Liabilities + SE
-
Balance Sheet: Broad categories
Assets; Liabilities and Stockholders' Equity
-
Balance Sheet: Assets (5)
Cash; Accounts recievable. Inventories, Plant and Equipment; Land
-
Balance Sheet: Liabilities
- Accounts payable (to suppliers); Notes payable (written debt contracts)
- - Total liabilities
-
Balance Sheet: Stockholders' Equity
- Contributed Capital; Retained earnings
- -Total stockholders' equity
- -Total liabilities and Stockholders' equity
-
Income Statement: Broad categories
Revenues, Expenses, Net Income
-
Income Statement: Revenues
Sales revenue
-
Income Statement: Expenses
- Cost of goods sold; selling, general and administrative; research and development; interest expense
- - Total expense
- Pretax Income
- -Income tax expense
-
Revenues are recorded when?
Revenues are recognized in the period in which goods and services are sold, not necessarily when cash is received.
-
Statement of Retained Earnings: listings
- Retained earnings [BOY]
- Net income for year
- Dividends for year
- Retained Earnings [EOY]
-
Why we need statement of cash flows?
Revenue reported doesn't always = cash collected; expenses reported /=/ cash paid; Income is usually not = to the change in cash for period
-
Statement of Cash Flows: Broad Categories (4)
Cash flows from operating activities; Cash flow from investing activities; Cash flow from financing activies; Net increase/ decrease in cash during year
-
Statement of Cash Flows: Cash flows from operating activities
- Cash collected from customers; cash paid to suppliers and employees; cash paid for interest; cash paid for taxes
- - Net cash flow from operating activities
-
Statement of Cash Flows: Cash flow from investing activities
- Cash paid to purchase equipment (land, stock, etc)
- -Net cash flow from investing activities
-
Statement of Cash Flows: Cash flow from financing activities
- Cash recieved from bank loan; cash paid for dividents
- - net cash flow from financing activities
-
Net decrease in cash during year
- -Cash at beginning of the year
- -Cash at end of the year
-
Three types of notes
Describe accounting rules applied; present additional detail about item on financial statements; provide info about items not on financial statements
-
Securities and exchange commission (SEC)
Given broad powers to determine measurement rules for financial statements
-
Financial Accounting Standards Board (FASB)
Body to formulate Generally Accepted Accounting Principles (GAAP)
-
Unqualified opinion
States that the financial statements are fair, in compliance with GAAP
-
Players in Accounting Communication Process
Management (preparation)--> Independent Auditors (verification)--> Information Intermediaries (analysis and advice), Government Regulators (verification- pub companies only)--> Users (analysis and decision- investors, lenders)
-
Annual Reports: Private companies
4 basic financial statements, relevant footnotes, report of independent accountants
-
Annual Reports: Public Companies
Nonfinancial section, financial section including summarized financial data, MD&A (management discussion and analysis), 4 fin statements, notes, auditor's report, recent stock price info, summaries of the unaudited quarterly financial data, lists of directors and their offices, addresses
-
Form 10-K annual report
Due within 60-75 days of fiscal year- end, must be audited
-
Form 10-Q Quarterly Report
Due within 30-40 days of end of quarter, can be unaudited
-
Qualitative Characteristics of External financial reporting
relevancy, reliability, comparability, consistency
-
Seperate entity assumption
Transactions of business are seperate from those of the owners
-
Unit- of- measure assumption
Accounting measures are in national monetary unit
-
Going- concern (continuity) assumption
Entity will not go out of business in near future
-
Time period assumption
Life of company can be broken up into a series of shorter reporting periods
-
Historical cost principle
Cash equivalent of cost given up for item is basis for intial recording of that item in financial statements
-
Revenue Recognition Principle
Record revenues when earned and measurable (exchange complete and collection probable)- does not have to correspond with cash collection
-
Industry practices
Differences in accounting and reporting are permitted if there is clear precedent in the industry
-
Conservatism
When uncertainty exists, the alternative produing the lowest asset value or least amount of income should be chosen
-
Because assets must equal liabilities+ owners' equity, every transaction ____
Must affect at least two balances (duality of effects) so equation is kept balanced
-
T- account: Left side= ____; Right side = _____
Left side= debit; right- side= credit
-
If an asset increases, record transaction on ____
debit (left) side
-
If there as an increase in liabilities or owners' equity, record on ____
Right (credit) side
-
Journal entries indicate
Date of event, accounts involved, direction of effect, dollar amount of effect, brief description of transaction-DEBITS ARE WRITTEN FIRST and credits are indented; debits must = credits
-
Steps in the Accounting Cycle
1) Analyze transactions. 2) Journalize transactions (general journal) 3) post to t- accounts (general ledger) 4) Prepare balance sheet
|
|
