Mechanics Flashcards
Qualified opinion
Exceptions to accting principles
Unqualified opinion
Clean opinion; statements free from material omissions and errors
Adverse opinion
Statements not presented fairly or materially nonconforming to accting standards
Disclaimer of opinion
Unable to form opinion
Income statement
Summarizes events over a period in terms of revenues, expenses, and other income
How much company makes
Statement of comprehensive income
Reports all changes in equity except for shareholder transactions
Balance sheet
Point in time in terms of assets, liabilities, and owner’s equity
What company owns, owes, and is owed
Assets =
Liabilities + owners equity
Cash flow statement
Reconciles beginning and ending cash balance in terms of operating cash flows, investing cash flows, and financing cash flows
How money is spent
Statement of changes in owner’s equity
Amount and sources if changes in shareholders’ equity over the period
Supplemental sources of information for auditing
Quarterly, semi-annual reports
Proxy statements
Corporate reports or press releases
Economic, industry data
Asset accounts
Cash & equivalents Accts Receivable Inventory Financial Assets (marketable secs) Prepaid Expenses Property, Plant & Equipment (+ accum depreciation) Investment in affiliates Deferred tax assets Intangible assets
Liability accounts
Accts payable, trade payables Financial liabilities (ST notes payable) Unearned revenue Income taxes payable LT debt Deferred tax liabilities
Owner’s equity accounts
Capital (par value of common stock)
Additional paid-in capital
Retained earnings
Other comprehensive income
Revenue
Sales
Gains
Investment income (interest and dividend)
Expenses
Cost of a Goods Sold Selling, general and administrative Depreciation/amortization Tax expense Interest expense Losses
Basic accounting equation
Assets = liabilities + owners’ equity
Expanded accounting equation
Assets = liabilities \+ contributed capital \+ beginning retained earnings \+ revenue - expenses - dividends
Double-entry accounting
To keep accting equation in balance, a transaction must be recorded in at least two accounts
Accrual accounting
Revenue is recorded when firm earns it and expenses are recorded as firm incurs them, regardless if whether or not cash has been paid.
Accrual accounting categories
Unearned revenue
Accrued revenue
Prepaid expenses
Accrued expenses
Unearned revenue
Firm receives cash before providing good or service.
+ cash (asset), + unearned rev (liability)
Accrued revenue
Firm provides good or service before receiving cash payment
+ revenue, + accts receivable
Prepaid expenses
Firm pays cash ahead of time for anticipated expense
- cash, + prepaid expense (asset)
Accrued expenses
Firm owes cash for expenses incurred
+ expenses, + liability for accrued expenses
Owner’s equity =
Contributed capital + retained earnings
Financial statement analysis framework
- Purpose and context
- Collect data
- Process data
- Analyze/interpret data
- Develop conclusions/recs
- Follow up
Ending retained earnings =
Beginning retained earnings
+ net income
- dividends
IFRS Qualitative Characteristics
Relevance
Faithful representation
IFRS recognition of items
Recognize an item if future economic benefit is probable and value or cost can be measured reliably
IFRS required reporting elements
Assets Liabilities Equity Income Expenses
IFRS fundamental principles
Fair presentation Going concern Accrual basis Consistency Materiality
IFRS required financial statements
Balance sheet Income statement Comprehensive income Change in equity Cash flow statement Accting policies and notes
IFRS - characteristics that’s enhance qualitative characteristics
Timeliness
Comparability
Verifiability
Understandability