FSA: Financial Reporting Mechanics Flashcards
Financial Statement Elements =
assets, liabilities, owners’ equity, revenues, expenses
Accounts, chart of accounts, contra accounts =
An account is a ‘specific record’ in an element where various transactions are entered.
Chart of accounts is a detailed list of the accounts (which make up elements/line items in the FS)
Contra accounts - used for entries that offset some part of the value of another account. (ie accumulated depreciation against an equipment account)
Assets (9 examples) =
THE FIRM’S ECONOMIC RESOURCES
Cash and cash equivalents (liquid securities with maturities of 90 days or less)
Accounts receivable (may have a contra account)
Inventory
Financial assets (such as marketable securities)
Prepaid expenses
PPE
Investment in affiliates (accounted for using the equity method)
Deferred tax assets
Intangible Assets
Liabilities (6 examples) =
CREDITOR CLAIMS ON THE COMPANY’S RESOURCES
Accounts Payable & trade payables
Financial Liabilities - such as short term notes payable
Unearned revenue - items that will show up on future income statements as revenues
Income taxes payable - accrued over last year but unpaid
Long-term debt - such as bonds payable
Deferred tax liabilities
Owners’ equity (4 exampes) =
OWNERS’ RESIDUAL CLAIM ON A FIRM’S RESOURCES (amount by which assets exceed liabilities)
Capital (par value of common stock)
Additional paid-in capital - proceeds from common stock in excess of par value (contra account is TREASURY STOCK)
Retained Earnings - cumulative net income not distributed as dividends
Other comprehensive income - changes from currency translation, unrealized G&L on investments
Revenue (3 examples) =
INFLOWS OF ECONOMIC RESOURCES
Sales
Gains - increases in assets from transactions incidental to day to day activities
Investment Income - such as interest, dividend income
Expenses (6 examples) =
OUTFLOWS OF ECONOMICS RESOURCES
COGS
SGNA - selling, general and administrative expenses - incl advertising, mgmt salaries, rent, utilities
Depreciation and Amortization - to reflect the ‘USING UP’ of tangible and intangible assets
Tax expense
Interest expense
Losses - decrease in assets from transactions incidental to day to day activities
EQUATION: ASSETS (x3) =
LIABILITIES + OWNERS’ EQUITY
LIABILITIES + OWNERS’ EQUITY + CONTRIBUTED CAPITAL + ENDING RETAINED EARNINGS
LIABILITIES + OWNERS’ EQUITY + CONTRIBUTED CAPITAL + BEGINNING RETAINED EARNINGS + REVENUE - EXPENSES - DIVIDENDS
Double Entry Accounting =
to keep the accounting equation in balance - a transaction must be recorded in at least 2 accounts.
Accruals: Unearned Revenue =
cash received in advance of providing a good or service. Cash UP (asset), UnEarned Rev UP (liab)
When the service is provided - revenue UP, UnEarned Rev DOWN
Accruals: Accrued Revenue =
Firm provides good or service before cash is received.
Rev UP, Acc Receivable UP
Cash paid: Acc Receivable DOWN
Accruals: Prepaid Expenses =
Firm pays cash ahead of time for an anticipated expense.
Cash DOWN (A), Prepaid Expense UP (A)
Expense incurred: Expense UP, Prepaid Expense DOWN
Accruals: Accrued Expenses =
Firm owes cash for expenses incurred
Expense UP, Accrued Expense UP(L)
Firm pays cash: Cash DOWN (A), Accrued Expense DOWN (L)
wages payable is a good example.
Accruals: Why?
When payment and delivery are not at the same time - with accruals they are recorded at the the correct times.
One entry when the first event occurs
An offsetting entry when the exchange is completed
Valuation Adjustments =
Most assets are recorded on the FS at historical costs.
We have sometimes use valuation adjustments to update values to be current market values.
Adjustments in ASSETS will need a counter adjustment to OWNER’S EQUITY, either gain or loss in the income statement, or sometimes ‘other comprehensive income’.
