Reading 22-Financial Reporting Mechanics (P1)

msk2222's version from 2018-01-28 20:36


Question Answer
Operating activitiesSales of goods and services to customers(R)Costs of providing the goods and services(X),Income tax expense: (X) Holding short-term assets or incurring short-term liabilities directly related to operating activities(A), (L)
Investing activitiesPurchase or sale of assets, such as property, plant, and equipment (A), Purchase or sale of other entities’ equity and debt securities (A)
Financing activitiesIssuance or repurchase of the company’s own preferred or common stock (E), Issuance or repayment of debt (L), Payment of distributions (i.e., dividends to preferred or common stockholders) (E)

Financial Statement Elements and Accounts

Question Answer
AccountsIndividual records of changes in a specific A.L component of owners’ equity, revenue, or expense. 
chart of accountsThe actual accounts used in a company’s accounting system
allowance for bad debtsconnection with its receivables, a company often expects some amount of uncollectible account
contra accountoffset or deducted from another account
contra accounts includeallowance for bad debts, accumulated depreciation, sales returns and allowances 
Non-current assetsIntangible assets including goodwill, Property, plant, and equipment, Investment property, Investments in joint ventures and associates.
Trade receivablesare amounts customers owe the company for products that have been sold as well as amounts that may be due from suppliers
Cashto cash on Hand and in the bank
Cash equivalentsvery liquid short-term investments, usually maturing in 90 days or less
Current assetsInventories, Trade and other receivables, Cash and cash equivalents
Other receivablesamounts owed to the company from parties other than customers

Accounting Equations

Question Answer
basic accounting equationAssets = Liabilities + Owners’ equity
Owners’ equityOwners’ equity = Contributed capital + Retained earnings
retained earningsEnding retainedearnings=Beginningretainedearnings+Netincome−Dividends
expanded accounting equationAssets = Liabilities + Contributed capital + Ending retained earnings

The Accounting Records

Question Answer
Steps1. Identify which accounts are affected, by what amount, and whether the accounts are increased or decreased. 2. Determine the element type for each account identified in Step 1 (e.g., cash is an asset) and where it fits in the basic accounting equation. Rely on the economic characteristics of the account and the basic definitions of the elements to make this determination.3.Using the information from Steps 1 and 2, enter the amounts in the appropriate column of the spreadsheet. 4.Verify that the accounting equation is still in balance.
direct format operating cash section appearing simply as operating cash receipts less operating cash disbursements
indirect formatbegins with net income and shows adjustments to derive operating cash flow
Balance Sheetinformation about a company’s financial position at a point in time.. Two years are usually presented so that comparisons can be made. Less significant accounts can be grouped into a single line item.
Income Statementinformation about a company’s profitability over a period of time.
Statement of Cash Flowsinformation about a company’s cash flows over a period of time. It shows a company’s cash inflows (receipts) and outflows (payments) during the period.
Statement of Owners’ Equityinformation about the composition and changes in owners’ equity during a period of time
Statement of Retained Earningswould report the changes in a company’s retained earnings during a period of time