2015, Study Session # 7, Reading # 23

FINANCIAL REPORTING MECHANICS

OCI
FS
AR
CF

= Other Comprehensive Income

= Financial Statements
= Accounts Receivables
= Cash Flows

23.a

COGS = Cost of Goods Sold

SG&A = Selling, General & Admin
AP
= Accounts Payables

IS
BS
MV
TB

= Income Statement
= Balance Sheet
= Market Value
= Trial Balance

F.S elements major classification of assets, liabilities, owners equity, revenues & expenses.

Accounts specific records within each element. Chart of accounts is a detailed list of accounts.

Contra accounts entries that offset some part of value of another account.

Classifying Accounts into F.S Elements

Assets

Liabilities

Owners Equity

Revenue

Expense

Firms economic
resources

Creditor claims on
companys resources

Owners residual
claim on firms
resources

Inflows of economic
resources

Outflows of economic
resources

Examples are cash &

equivalent, AR,
inventory, financial
assets, prepaid exp
etc.

Examples are AP
financial liabilities,
unearned revenue
income tax payable
etc.

It includes, capital,
additional paid in
capital, retained
earnings & OCI.

It includes sales, gains

& investment income

COGS, SG&A,
depreciation, tax,
interest & losses.

23.b

Basic accounting equation
Assets = liabilities + owners equity.

Expanded accounting equation.
Assets = liabilities + contributed capital + beg. Retained earnings + revenue exp - dividends

23.c

Double- entry accounting transaction has to be recorded in at least two accounts.

Accruals

23.d

Unearned Revenue

Accrued Revenue

Receive cash before

providing good or service
cash
, unearned
revenue
(liability).

Provide goods or services

before receiving cash,
revenue
, AR
.

Prepaid Expenses

Pay cash ahead of time

for anticipated expense,
cash, prepaid exp
(asset)
.

Accrued Expenses

Owes cash for expenses

it has incurred,
expenses
, accrued exp
(liability)
.

With unearned revenue & prepaid expenses, cash changes hand first & revenue or expense recorded later & vice versa in case of
accrued revenue & accrued expenses.

Valuation adjustments B.S value of certain assets to reflect their current MV.

To keep equation in balance in assets also change equity through I.S or OCI.

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2015, Study Session # 7, Reading # 23

23.e

B/S summarizes the companys financial position at the end of current accounting period.

I.S, CF statement & statement of owners equity show changes that occurred during most
recent accounting period.

23.f
General journal

Listing of all general

entries.

General ledger

Sort the entries in

general journal by
account.

Trial balance

Initial T.B shows

balance in each account
adjusted T.B after
adjusting entries.

23.g

Crucial for analyst to review footnotes & MD&A.

Due to allowable discretion of management regarding adjustments & assumptions,
possibility exist for management manipulation of financial statements.

A good understanding of accounting process is required by analyst.

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Financial statements

Account totals from

adjusted trial balance.