CHAPTER 9: Understanding Financial Statements Flashcards
Statement of Financial Position
Shows the companys financial position at a specific date.
What the company owns and owes at a single point in time.
Annual reports - last day of company’s fiscal year
Asset Formula
Assets = Equity + Liabilities
Current Assets & Fixed Assets
Current Assets: To be converted into cash within a year
Fixed Assets: Last longer than a year. For long-term day-today operations to produce goods and services
3 types of Current Liabilities & Long-Term Liabilities
3 Current Liabilities:
1) Trade Payable
- Goods the company has bought but has not paid for
2) Note Payable
- Loans that must be paid within a year
3) Accrued Charges
- Wages earned by employees but not paid
- Taxes payable to the provincial and federal government
Long-term Liabilities
- Not likely to be paid off in a year
- bonds or a term loan
Shareholders equity & Retained earnings
Shareholders contributions to the company by buying shares.
Retained Earnings:
Profits not distributed to shareholders, but reinvested into the company
Statement of Comprehensive income
Revenues and expenses over a specific period.
Financial statements to shareholders quarterly or annually.
Gross profit Calculation
Gross profit = Revenues - Cost of sales
Expenses are compromised of:
General and administrative Selling Expense Depreciation Interest Expense Taxes (Added together is the total expenses)
Profit Formula
Profit = Gross Profit - Total Expenses
Statement Of Changes in Equity
Linked between Statement of Comprehensive Income (Yearly Earnings) and the Statement of Financial position (Retained Earnings).
Retained Earnings at end of period Calculation
Retained earnings at beginning of period + Profit for the period - Dividends paid to shareholders
Auditors report 4 Sections
Introduction, identifying the financial statements covered by the audit
Outline of the financial statement responsibility of management
Outline of the auditor’s responsibilities, how it was planned, and how it was conducted
Provides the auditor’s opinion on the fairness of the statements of the company they audited
