Study Unit 2: Financial Statements Flashcards
What are current assets?
CashInventory or Assets expected to be converted or consumed during a business’ operating cycleDeferred Gross Profit on Installment Sales (Contra Asset)Receivables expected to be collected in 12 months or less
What are current liabilities?
Liabilities that will use current assets during the present operating cycle
What is an accrued liability?
Expense that has been incurred but not paidExample: rents payable
What is an operating cycle?
Average time it takes to turn materials or services into Cash
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 owners2) Statement of Earnings (Income Statement) - Revenues -Gains -Expenses -Losses3) Statement of Comprehensive Income4) Statement of Investments by and Distributions to Owners
What are the main elements to building a financial statement according to IFRS?
1) Assets2) Liabilities3) Equity4) Income (includes revenues and gains5) Expenses (including losses
What changes to the Assets and Liabilities that DO NOT change Equity?
1) Asset exchanges2) Liability exchanges3) Receipt of goods or services w/ incurrence of payables4) Settlement of payables with assets
What changes to the Assets and Liabilities that DO change Equity?
1) Comprehensive Income - Revenues - Expenses -Gains -Losses2) 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 dividends2) 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 Equivalents2) Certain individual Trading, Available of sale, and held-to-maturity securities3) Receivables4) Inventories5) 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 use2) Plant, Property, & Equipment3) Intangible assets4)Other noncurrent assets
What items are classified as current Liabilities?
1) Trade payables2) Other Payables3) Unearned Revenue4) 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 so2) Dividends not yet declared3) 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 issued2) 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 Bonds2) Liabilities under Capital Leases3) Most postretirement benefit obligations4) Deferred tax liabilities arising from interperiod tax allocation5) Obligations under product or service warranty agreements6) Advances for noncurrent commitments to provide goods or services7) Advances for affiliated entities8) 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 entityLess5) 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/losses2) 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.
