Financial Statements Flashcards
Which Personal Financial Statements are required?
Statement of Financial Condition & Statement of Changes in Net Worth
How are assets and liabilities valued in a Personal Financial Statement?
Estimated current value
How are estimated taxes that would be paid if all assets were converted into cash and all liabilities paid presented on a Personal Financial Statement?
Presented on Statement of Financial Condition between Liabilities and Net Worth
What is the general presentation on a statement of financial condition?
Assets
- Liabilities
- Estimated taxes on assets sold
: Net Worth
How is life insurance presented on a Personal Financial Statement?
Only shown if there is cash surrender value
It is shown net of loans against the policy
How are business interests shown on a Personal Financial Statement?
Business Interests that constitute a large percentage of total assets should be separated from other investments
What is the discreet view in an Interim Financial Statement?
Interim period is a separate accounting period - not GAAP
Same accounting principles used for annual reporting should be used.
What is the integral view in an Interim Financial Statement?
Interim period is a part of the annual period - GAAP
Gross profit method may be used to estimate COGS and inventory
Temporary declines in inventory aren’t recognized
How are discontinued operations & extraordinary items reported in Interim Financial Statements?
Aren’t prorated
Fully recognized in Interim Period as incurred
If it occurs in Q3 - it’s recognized in Q3
How are cumulative gains and losses reported in Interim Financials?
Reported as if they occurred in the first quarter
How is inventory valuation handled in Interim Financials?
If inventory experiences a decline in value during an interim period - the loss is recognized in the interim period
If the loss is expected to be only temporary - no loss is recognized
What is one of the primary problems with interim reporting?
The matching principle gets messed up - Expenses incurred in one period may benefit future periods
For whom is Segment Reporting required?
Publicly traded companies
What factors cause a segment to be significant and therefore to be reported separately?
Revenue of segment is 10% or more of total
Profit is 10% or more of total
Segment assets are 10% or more of total
75% Test - All segment revenues must equal 75% of total external revenues
What is the disclosure requirement regarding sales of 10% or more for one customer?
If 10% or more of enterprise revenue comes from one customer - the segment making the sales must be disclosed
What is the primary use of Financial Statements?
The primary method of communicating to external parties information about the entity’s results of operations, financial position, and cash flows.
What are the main elements to building a financial statement according to GAAP?
1) Statement of Financial Position (Balance Sheet)
- Assets
- Liabilities
- Equity
- Investments to the owners
- Distributions to the owners
2) Statement of Earnings (Income Statement)
- Revenues
- Gains
- Expenses
- Losses
3) Statement of Comprehensive Income
4) Statement of Investments by and Distributions to Owners
What are the main elements to building a financial statement according to IFRS?
1) Assets
2) Liabilities
3) Equity
4) Income (includes revenues and gains
5) Expenses (including losses
What changes to the Assets and Liabilities that DO NOT change Equity?
1) Asset exchanges
2) Liability exchanges
3) Receipt of goods or services w/ incurrence of payables
4) Settlement of payables with assets
What changes to the Assets and Liabilities that DO change Equity?
1) Comprehensive Income
- Revenues
- Expenses
- Gains
- Losses
2) Transfers between Entity and Owners
- Investments by owners
- Distributions to owners
What changes to Equity that DO NOT change Assets and Liabilities ?
1) Declaration and distribution of stock dividends
2) Conversion of preferred stock
Define Balance Sheet
The statement of financial position reports the assets, liabilities, equity, and their relationships at a MOMENT in TIME.
IT helps users to assess liquidity, financial flexibility, profitability, and risk.
Define Current Assets
Cash and other assets or resources commonly identified as reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the buiness
Define Current Liabilities
Obligations whose liquidation is reasonably expected to require the use of existing resources properly as current assets, or the creation of other current liabilities.
What items are classified as current assets?
1) Cash and Cash Equivalents
2) Certain individual Trading, Available of sale, and held-to-maturity securities
3) Receivables
4) Inventories
5) Prepaid Expenses
What items are classified as Noncurrent assets?
1) Certain investments and funds
- securities held LONGER than 1 Year
- Funds restricted
- Cash surrender value of life insurance policy
- Capital assets NOT in current use
2) Plant, Property, & Equipment
3) Intangible assets
4) Other noncurrent assets
What items are classified as current Liabilities?
1) Trade payables
2) Other Payables
3) Unearned Revenue
4) Other obligations expected to be liquidated
What items are NOT classified as current Liabilities?
1) Current obligations if an entity (a) intends to refinance them on a NONCURRENT basis and (b) demonstrates an ability to do so
2) Dividends not yet declared
3) Debts to be paid from funds accumulated in noncurrent assets account
The ability to refinance a debt may be demonstrated by?
1) Enter into a financing agreement meeting all conditions BEFORE the balance sheet is issued
2) Issuing a noncurrent obligation or equity securities AFTER the end of the reporting period BUT before issuance of the balance sheet
How does IFRS classify a liability that is due to be settled within 12 months?
Financial liabilities due to be settled within 12 months should CONTINUE to be classified as CURRENT.
This applies even if
(1) the original term exceeded 12mths and
(2) an agreement to refinance or reschedule payments on a noncurrent basis is completed AFTER the reporting period and BEFORE the financial statements are authorized for issue.
What items are classified as Noncurrent Liabilities?
1) Noncurrent Notes and Bonds
2) Liabilities under Capital Leases
3) Most postretirement benefit obligations
4) Deferred tax liabilities arising from interperiod tax allocation
5) Obligations under product or service warranty agreements
6) Advances for noncurrent commitments to provide goods or services
7) Advances for affiliated entities
8) Deferred Revenue
Define Equity
The residual after total liabilities are subtracted from total assets.
(Any recognized transaction that does NOT have equal and offsetting effects on total assets and total liabilities changes equity)
What items are classified under the equity section?
1) Captial contributed by owners (par value of c/s & p/s issued and APIC)
2) Retained Earnings (income reivested)
3) Accumulated other comprehensive income
4) The noncontrolling interest in a consolidated entity
Less
5) Treasury Stock
Define the purpose of an Income Statment
The results of operations are reported in the income statement on the accrual basis using an approach oriented to historical transactions.
Revenues - Expenses + Gains - Losses = Net Income (loss)
What are the 3 formats of the income statement and their purpose?
1) Single Step - provides one grouping for revenues/gains and one grouping for expenses/losses
2) Multiple-step - matches operating revenues and expenses in a section separate from nonoperating items.
3) Condensed - Common method b/c it includes only the section totals of the multiple-step format.
How is the COGS calculated?
Beginning FG inventory \+ Purchases or COGM = Goods Available for Sale -Ending FG Inventory = COGS
What are the 2 ways to calculate COGM?
Beginning WIP
+ Sum of periodic manufacturing costs
- Ending WIP
= COGM
or Ending FG Inventory \+ COGS - Beginning FG inventory = COGM
What is comprehensive income?
Includes all changes in equity of a business during a period EXCEPT those from invests by and distributions to owners.
Net Income + OCI = Comprehensive income
What are some items classified as Other Comprehensive income?
1) Unrealized gains/losses on AFS (except those that are hedged items in a F.V hedge)
2) Gains/Losses on derivatives
3) Certain amounts w/ recognition of funded status of postretirement defined benefits plans
4) Certain foreign currency items
What are some transactions that effect retained earnings and result in adjustments?
1) Net income/loss for the period
2) Any prior-period adjustments, net of tax
3) Dividends declared
4) Certain other rare items
Define Cash Basis of reporting
Revenues and expenses are recognized when CASH is received or paid, regardless of when goods are delivered or received or when services are rendered,
Modified Cash Basis
Uses the cash basis for typical operating activities with modifications having substantial support
Examples: reporting inventory, accruing income taxes, and capitalizing and depreciating fixed assets
What are some examples of other bases of Accounting
1) Cash Basis
2) A basis used to comply w/ requirements of a regulator
3) Basis used for tax purposes
