chapter 1: statement of changes in equity

Question 1

what do the statement of changes in equity represent?

Answer 1

all changes to shareholders’ equity during accounting period

it shows how it affected the company’s financial position during the accounting period

Question 2

retained earnings

Answer 2

earnings used for reinvestment and kept by company

Question 3

dividends

Answer 3

money given to shareholders

Question 4

what do the statements of cash inflow represent

Answer 4

cash inflows and outflows related to operations

ONLY CASH FLOWS WHEN CASH INVOLVED

Question 5

what are the three main elements of statements of cash flow

Answer 5

cash flow from operating activities (CFO)

cash flow from investing activities (CFI)

cash flow from (financing activities)

Question 6

why do reported revenues not always equal cash collected in a certain accounting period?

Answer 6

because revenues include all sales including credit

cash collected does include credit sales

Question 7

what is the order in which we prepare financial statements

Answer 7

1. Statement of Earnings
2. Statement of Changes in Equity
3. Statement of Financial Position
4. Statement of Cash Flows

Question 8

how are retained earnings in a statement of changes in equity affected

Answer 8

Net earnings for the year increases the balance of retained earnings

the declaration of dividends to the shareholders decreases retained earnings.

Question 9

what is the accounting equation for retained earnings?

Answer 9

beginning retained earnings + net earnings - dividends