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
Risk and uncertainties that require disclosures in financial statements
1) Nature of operations
2) Use and extent of estimates
3) Significant estimates and potential impact
4) Current Vulnerability b/c of:
* Customers, suppliers, lenders, grantors or contributors
* REV from products, services or fund-raising
* Available sources of materials/labor
* Market/Geography of entity’s operations
Income Statement
Shows how much the business earned during a period of time. This is what you have earned from providing goods and services less what it costs you to provide goods and services
Retained Earnings
the amount of cumulative profits and losses kept by the company since the first day of operations.
Retained earnings changes with net income (profits and losses) and dividends paid to shareholders (owners)
Beginning Retained Earnings
+ Net Income or - Net Loss
- Dividends Paid
= Ending Retained Earnings
The Accounting Equation
Assets = Liabilities + Stockholder’s Equity Have = Owe + Own (Includes net profits)
Revenues
- Expenses =
Net profit or loss
Property/Plant/Equipment (PP&E)
Assets used long-term to generate revenues; they have physical substance (Buildings, Equipment, Autos, Land, Computers)
Accumulated Depreciation
The total amount for all prior years (cumulative) of depreciation expense for all prior periods. This is a contra account subtracted from plant, and equipment
Common Stock or Contributed Capital
Funds received from investors in exchange for ownership – common stock is reported at par value
Additional Paid in Capital
Amounts over and above par raised from investors from the sale of stock (ownership)
Comprehensive Income Statement Required Disclosures
The statement of other comprehensive income requires disclosure of changes during a period of items such as unrealized gains and losses on available-for-sale securities, pension funding status adjustments, and foreign currency translation gains and losses.
