Financial Statements Flashcards
are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users
Financial statements
Financial statements are a structured financial representation of what?
the financial position and financial performance of an entity
These are the statements intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.
General purpose financial statements
Reports prepared at the request of management and bankers are not general purpose financial statements. True or False.
True. These reports are prepared specifically to meet the needs of management and bankers.
What comprises a complete set of financial statements?
- Statement of financial position
- Income statement
- Statement of comprehensive income
- Statement of changes in equity
- Statement of cash flows
- Notes
What comprise notes to financial statements?
A summary of significant accounting policies and other explanatory information.
Reports and statements such as environmental reports and value added statements are not components of financial statements. True or False.
True. Many entities also present these two particularly in industries in which environmental factors are significant and when employee are regarded as an important user group. However, such statements and reports are not components of financial statements.
What is the objective of general purpose financial statement?
to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
Financial statements do not provide all the information that users may need to make economic decision. True or False.
True. Financial statements largely portray the financial effects of past events and do not necessarily provide nonfinancial information.
The financial position comprises the …
assets, liabilities and equity of an entity at a particular moment in time.
Financial position pertains to the …
liquidity, solvency, and the need of the entity for additional financing.
The financial performance comprises the …
revenue, expenses and net income or loss of an entity for a period of time.
Performance is the __________ earned by an entity through the efficient and effective use of its resources.
level of income
are the cash receipts and cash payments arising from the operating, investing and financing activities of the entity.
Cash flows
is the provision of financial information about any entity to external users that is useful to them in making economic decisions and for assessing the effectiveness of the entity’s management.
Financial reporting
Financial reports include not only financial statements but also other information such as …
financial highlights, summary of important financial figures and analysis of financial statements.
Financial reports also include …
nonfinancial information such as description of major products and a listing of corporate officers and directors.
What is the objective of financial reporting?
to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
What are the three specific objectives of financial reporting?
a) To provide information useful in making investing and credit decisions about providing resources to the entity.
b) To provide information useful in assessing the cash flow prospects of the entity.
c) To provide information about entity resources, claims and changes in resources and claims.
General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need. True or False.
True.
General purpose financial reports are not designed to show the value of a reporting entity. True or False.
True.
General purpose financial reports provide information to help the primary users estimate the value of the entity.
True.
General purpose financial reports are intended to provide common information to users and cannot accommodate every specific request for information.
True.
Financial reports are based on estimate and judgement rather that exact depiction.
True.
It has the primary responsibility for the preparation and presentation of financial statements.
management of an entity
What are the eight general features of financial statements?
- Fair presentation and compliance with PFRS
- Going concern
- Accrual basis
- Materiality and aggregation
- Offsetting
- Frequency of reporting
- Comparative information
- Consistency of presentation
Fair presentation is achieved if the financial statements are …
prepared in accordance with the Philippine Financial Reporting standards
An entity whose financial statements comply with PFRS shall make an explicit and unreserved statement of such compliance in the notes. True or False.
True.
faithful representation of the effects of transactions and other events in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses laid down in the Conceptual Framework.
Fair presentation
means that the accounting entity is viewed as continuing in operation indefinitely in the absence of evidence to the contrary.
Going concern or continuity assumption
the effects of transactions and other events are recognized when they occur and not as cash or cash equivalent is received or paid, and they are recorded and reported in the financial statements of the periods to which they relate.
Accrual basis
assets are recognized when receivable rather than when received and liabilities are recognized when payable rather when actually paid.
Accrual basis
income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when paid.
Accrual accounting
What is the essence of accrual accounting?
The essence of accrual accounting is the recognition of accounts receivable, accounts payable, prepaid expenses, accrued expenses, deferred income, and accrued income.
An entity shall present separately each class of similar items items. True or False.
True.
An entity shall present separately items of dissimilar nature or function unless they are immaterial.
True.
When an item is material?
An item is material if knowledge of it would affect the decision of the primary users of the financial statements.
What three important aspects the revised definition of materiality highlights?
- Could reasonably be expected to influence
- Obscuring information
- Primary users
Who are the primary users?
existing and potential investors, lenders and other creditors
An entity shall clearly identify each financial statement and display all of the following:
- name of the reporting entity
- whether the financial statements cover the individual entity or a group of entities
- end of the reporting period or the period covered by the financial statement or notes
d. presentation of currency
e. level of rounding used in the amounts in the financial statements
