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Flashcards in Financial Statements Deck (29):

Income Statement—Statement of Profit or Loss

Measures the performance of the firm for the period. It is dated for the entire period (e.g., for the year ended December 31, 20xX)


What is included in the Income Statement?

Almost all revenues, expenses, gains, and losses are shown on the income statement and are included in the calculation of net income. A major exception here is prior period adjustments


Statement of Comprehensive Income

Reports all non-owner changes in equity over a period of time—items on it are:
a. Unrealized gains and losses on available for sale securities
b. Adjustments in the calculation of pension liability
c. Foreign currency translation adjustments
d. Deferrals of certain gains or losses on hedge accounting


What is included in the Statement of Comprehensive Income?

Net income (or loss) and the items not part of net income such as:
1. Unrealized gains and losses on available-for-sale securities
2 .Adjustments in the calculation of the pension liability
3. Foreign currency translation adjustments
4. Deferrals of certain gains or losses on hedge accounting


Balance Sheet—Statement of Financial Position

Discloses the resources of the firm at a point in time. It is dated as of a specific date (e.g., December 31, 20xX).


What is included in the Balance Sheet—Statement of Financial Position?

A business enterprise discloses its economic resources (assets) and the manner of financing the acquisition of those resources (creditors, owners’ contributions, and prior year's earnings) in the balance sheet A=L+OE


What are the two formats of a Balance Sheet?

Account format - the assets are shown on the left side of the page, and the liabilities and owners’ equity are shown on the right side
Report format - categories of accounts are listed from top to bottom


Which accounts are classified on the Balance Sheet?

Assets, liabilities, and equities


What's the prescribed order of Assets?

In order of decreasing liquidity. The most liquid assets (such as cash) are shown first, and less liquid assets are shown last (such as property, plant, and equipment)


What's the prescribed order of Liabilities?

In order of maturity. Current liabilities are presented first and then long-term liabilities are presented


What's the prescribed order of Owners Equity?

(Also referred to as Shareholders’, Stockholders’, or Shareowners’ Equity) items are shown in order of permanence


What are current assets?

Assets that are in the form of cash, or will be converted into cash, or consumed within one year or the operating cycle of the business


What are types of current assets?

Cash, accounts receivable, short-term investments, inventory, and prepaid assets are current assets


What are current liabilities?

Liabilities that are due in the upcoming year or in the operating cycle of the business; will be met through the transfer of a current asset or the creation of another current liability


What are types of current liabilities?

Accounts payable, wages payable, income tax payable, unearned revenues, and warranty liability are current liabilities along with the current portion of long-term debt


What are Long-term assets and long-term liabilities

These are defined by exclusion. All assets/liabilities that do not meet the criteria necessary to be classified as current are classified as long-term assets/liabilities


What are types of Long-term assets?

Long-term investments, plant assets, certain deferred charges, and intangible assets are non-current assets


What are types of Long-term liabilities?

Notes and bonds payable and mortgages payable are long-term liabilities


Statement of Stockholders’ Equity

Presents the changes in the owners’ equity over a period of time—the same time period as the income statement


What changes affect the Statement of Stockholders’ Equity?

Changes in contributed capital, additional paid-in capital, and retained earnings. These changes arise from the purchase and sale of shares of the entities stock, the changes in comprehensive income, and the payment of dividends


Statement of Cash Flows

It describes the major changes in cash by meaningful category


What's the purpose of the Statement of Cash Flows?

To explain the change in cash and cash equivalents that has occurred during the past accounting year such as short-term investments that:
Are convertible into a known and fixed amount of cash; and have an original maturity to the purchaser of three months or less


What are the three categories of Cash Flows?

Operating, Investing and Financing


What is Operating?

Those cash flows related to transactions that flow through the income statement


What items are included in Operating Cash Flows?

Cash inflows are receipts from customers and interest. Cash outflows are payments to suppliers, to employers, and to taxing authorities


What is Investing?

Cash flows related to the acquisition and disposal of long-term assets and investments (other than cash equivalents and trading securities; these are operating)


What items are included in Investing?

Cash outflows include purchases of plant assets and investments. Cash inflows include proceeds from the sale of these items


What is Financing?

Cash flows related to the liabilities and owners’ equity sections of the balance sheet


What items are included in Financing?

Cash inflows include issuing debt and equity securities. Cash outflows include retirement of debt and equity securities, and dividend payments