R APID REVIEW

PART 1: SELECTED CHAPTER TOPICS

Financial Accounting: Tools for Business Decision-Making, Fifth Canadian Edition
FINANCIAL STATEMENTS (Chapter 1)

ADJUSTING ENTRIES (Chapter 4)

Business Activities

Type

1. Financing activities: Borrowing cash from lenders by issuing debt, or conversely, using cash to
repay debt. Cash can also be raised from shareholders by issuing shares, or paid to shareholders
by repurchasing shares or distributing dividends.
2. Investing activities: Purchasing and disposing of long-lived assets such as property, plant, and
equipment and purchasing and selling long-term investments.
3. Operating activities: Result from day-to-day operations and include revenues and expenses and
related accounts such as receivables, supplies, inventory, and payables.

Prepayments

Accruals

Interrelationship of Financial Statements

Order of Preparation

Relationship

Date

1. Income statement

Period ended

2. Statement of changes
in equity

Profit (loss) from income statement is added to

(deducted from) opening retained earnings on
statement of changes in equity

Period ended

3. Statement of
financial position

Ending balance of each component of

shareholders equity from statement of changes in
equity is reported in shareholders equity section
on statement of financial position

End of the
period

4. Statement of cash
flows

Cash balance reported on statement of financial

position agrees to ending cash balance on
statement of cash flows

Period ended

Original Entry

Adjusting Entry

1. Prepaid
expenses

Dr. Asset account

Cr. Cash

Dr. Expense account

Cr. Asset account

2. Unearned
revenues

Dr. Cash
Cr. Liability
account

Dr. Liability account

Cr. Revenue account

1. Accrued
revenues

No entry

Dr. Asset account

Cr. Revenue account

2. Accrued
expenses

No entry

Dr. Expense account

Cr. Liability account

Note: 1. Each adjusting entry will affect one income statement account and one statement of
financial position account.
2. Adjusting entries never include the Cash account.

Selected Adjusting Entry Calculations

Depreciation = Cost  Useful life (in years)  Time in terms of one year (Number of months  12)
Interest = Face value  Annual interest rate  Time in terms of one year (Number of months  12)

CLOSING ENTRIES (Chapter 4)

Purpose
1. Update the Retained Earnings account by transferring profit (loss) and dividends to retained
earnings.
2. Prepare the temporary accounts (revenue, expense, dividends) for the next periods postings
by reducing their balances to zero.

CONCEPTUAL FRAMEWORK (Chapter 2)

Objective of Financial Reporting

Process
Qualitative Characteristics of Useful Financial Information
Fundamental Qualitative Characteristics

Enhancing Qualitative Characteristics

Constraint

1. Relevance
Predictive value
Confirmatory value
Material
2. Faithful representation
Complete
Neutral
Free from material error

1. Comparability
2. Verifiability
3. Timeliness
4. Understandability

1. Cost

STOP AND CHECK: (1) Is the balance in the Income Summary account, before transfer to the
Retained Earnings account, equal to the profit (loss) reported in the income statement? (2) Does
the balance in the Retained Earnings account equal the ending balance reported in the statement
of changes in equity and statement of financial position? (3) Are all of the temporary account
balances zero?

Underlying AssumptionGoing Concern

Elements

Measurement of the Elements

1. Assets
2. Liabilities
3. Equity
4. Revenue
5. Expenses

1. Historical cost
2. Fair value

ACCOUNTING CYCLE (Chapters 3 and 4)

9
Prepare a post-closing
trial balance

ACCOUNTING EQUATION (Chapter 3)

Assets

Assets
Dr.


Cr.


1. To close revenue accounts: Debit each individual revenue account for its balance and credit
Income Summary for total revenues.
2. To close expense accounts: Debit Income Summary for total expenses and credit each individual expense account for its balance (assuming normal balances).
3. To close income summary: Debit Income Summary for the balance in the account (or credit
if a loss) and credit (debit) Retained Earnings.
4. To close dividends: Debit Retained Earnings and credit Dividends for the balance in the
account.

Liabilities

Liabilities
Dr.


Cr.


3
Post to
general ledger accounts

Shareholders Equity
Income statement
Statement of changes in equity
Statement of financial position
Statement of cash flows

 Common Shares  Retained Earnings

Dr.


Cr.


Dr.


Cr.


Revenues
Dr.


EP1

Cr.


Expenses
Dr.


Cr.


Dividends
Dr.


Cr.


2
Journalize the
transactions

Journalize and post

closing entries

Analyze business
transactions

Prepare an adjusted
trial balance

4
Prepare a
trial balance

5
Journalize and post
adjusting entries:
Prepayments/Accruals

INVENTORY (Chapter 5)

Formula for Cost of Goods Sold (periodic inventory system)

Perpetual vs. Periodic Journal Entries (buyer)

Transaction

Beginning
Inventory

Cost of Goods
Purchased

Cost of Goods
Available
for Sale

Perpetual

Periodic

Purchase of merchandise

Dr. Merchandise Inventory

Cr. Cash or Accounts Payable

Dr. Purchases
Cr. Cash or Accounts Payable

Freight on merchandise
purchased (FOB shipping
point)

Dr. Merchandise Inventory

Cr. Cash or Accounts Payable

Dr. Freight In
Cr. Cash or Accounts Payable

Control Activities

Return of purchased
merchandise

Dr. Cash or Accounts Payable

Cr. Merchandise Inventory

Dr. Cash or Accounts Payable

Cr. Purchase Returns and
Allowances

Authorization of transactions and activities

Segregation of duties
Documentation
Physical controls
Independent checks of performance
Human resource controls

Paying creditors on account Dr. Accounts Payable

within discount period
Cr. Merchandise Inventory
Cr. Cash

Dr. Accounts Payable

Cr. Purchase Discounts
Cr. Cash

Adjustment of inventory in Dr. Cost of Goods Sold

Cr. Merchandise Inventory
accounting records to lower
physical count amount
(entry is opposite for higher
amount)

No entry

Sale of merchandise

Freight on merchandise
sold (FOB destination)

Cost of
Goods Sold

Calculation of Deposits in Transit

Deposits
recorded in
companys books
this period

Deposits
recorded on
this periods
bank statement

Deposits in
transit at end
of period

Cheques
recorded on
this periods
bank statement

Outstanding
cheques at end
of period

Calculation of Outstanding Cheques

Perpetual

Periodic

Dr. Cash or Accounts

Receivable
Cr. Sales
Dr. Cost of Goods Sold
Cr. Merchandise Inventory

Dr. Cash or Accounts

Receivable
Cr. Sales
No entry

Dr. Freight Out

Cr. Cash or Accounts Payable

Dr. Freight Out

Cr. Cash or Accounts Payable
Dr. Sales Returns and
Allowances
Cr. Cash or Accounts
Receivable
No entry

Return of sold merchandise Dr. Sales Returns and

(assuming resaleable)
Allowances
Cr. Cash or Accounts
Receivable
Dr. Merchandise Inventory
Cr. Cost of Goods Sold
Collection of account from
customer within discount
period

Ending
Inventory

INTERNAL CONTROL AND CASH (Chapter 7)

Deposits in
transit at
beginning of
period

Perpetual vs. Periodic Journal Entries (seller)

Transaction

Dr. Cash
Dr. Sales Discounts
Cr. Accounts Receivable

Dr. Cash
Dr. Sales Discounts
Cr. Accounts Receivable

INVENTORY (Chapter 6)

Outstanding
cheques at
beginning of
period

Cheques recorded
in companys
books this period

Bank Reconciliation
Books

Bank

Cash balance per books

Add: Unrecorded credit memoranda from bank
statement
Deduct: Unrecorded debit memoranda from
bank statement
Add (deduct): Book errors
= Adjusted cash balance per books

Cash balance per bank statement

Add: Deposits in transit
Deduct: Outstanding cheques
Add (deduct): Bank errors
= Adjusted cash balance per bank

Note: 1. Errors should be offset (added or deducted) on the side that made the error.
2. Adjusting journal entries should only be made on the books side.
STOP AND CHECK: (1) Do adjusted cash balances per bank and per books agree? (2) Does adjusted cash balance equal the balance in the general ledger Cash account after all adjusting journal
entries have been made?

RECEIVABLES (Chapter 8)

Ownership of Merchandise

Debit and Credit Card Transactions

General Rule: Inventory is the buyers when received, except:
Goods purchased in transitFOB shipping point

Buyers once shipped

Goods sold in transitFOB destination

Buyers until it reaches the sellers

destination

Consigned goods

Sellers (consignor) until sold

Other situationsGoods on approval

Sellers until sold

Debit Card

Bank Credit Card

Dr. Cash
Dr. Debit Card Expense
Cr. Sales

Dr. Cash
Dr. Credit Card Expense
Cr. Sales

Bad Debts
Transaction

Guidelines for Choice of Cost Formula

1. Choose method that corresponds to physical flow of goods.
2. Report inventory cost on the statement of financial position close to inventorys recent cost.
3. Use same method for all inventories having similar nature and usage.

Dr. Accounts Receivable

Cr. Sales

Estimate bad debts

Dr. Bad Debts Expense

Cr. Allowance for Doubtful Accounts

Write off uncollectible account

Dr. Allowance for Doubtful Accounts

Cr. Accounts Receivable

Subsequent recovery

Dr. Accounts Receivable

Cr. Allowance for Doubtful Accounts
Dr. Cash
Cr. Accounts Receivable

Financial Statement Effects of Cost Determination Methods (during period

of rising prices)
Specific Identification

FIFO

Average

Income statement
Cost of goods sold
Gross profit
Profit

Variable
Variable
Variable

Lowest
Highest
Highest

Highest
Lowest
Lowest

Statement of financial position

Cash (pre-tax)
Ending inventory
Retained earnings

Same
Variable
Variable

Same
Highest
Highest

Same
Lowest
Lowest

Journal Entry

Record credit sales

Inventory Cost Determination Methods

1. Specific identification: Used for goods that are not ordinarily interchangeable, or goods that
have been produced and segregated for specific projects
2. Cost formulas: First-in, first-out (FIFO) or Average

Company Credit Card

Dr. Credit Card Receivables
Cr. Sales

Notes Receivable
Honouring Notes
Receivable
Dr. Cash
Cr. Notes Receivable
Cr. Interest Revenue
and/or Receivable

Dishonouring Notes
Receivable (eventual
collection assumed)

Dishonouring Notes
Receivable (eventual collection not assumed)

Dr. Accounts Receivable

Cr. Notes Receivable
Cr. Interest Revenue and/
or Receivable

Dr. Allowance for Doubtful

Notes
Cr. Notes Receivable
Cr. Interest Receivable
(if any)

EP2

SHAREHOLDERS EQUITY (Chapter 11)

Steps to Manage Receivables

1.
2.
3.
4.
5.

Determine to whom to extend credit

Establish a payment period
Monitor collections
Evaluate the liquidity of receivables
Accelerate cash receipts from receivables when necessary

LONG-LIVED ASSETS

Reacquisition of Shares (retired and cancelled)

Average cost of shares = Dollar amount in share account Number of shares
Below Average Cost

Above Average Cost

Dr. Common/Preferred Shares (@average

cost)

(Chapter 9)

Calculation of Annual Depreciation Expense

Straight-line

Cost Residual value

Useful life (in years)

Diminishingbalance

Carrying amount at beginning of year  Straight-line rate

Straight-line rate = 1 Useful life (in years)

Units-ofproduction

Cost Residual value

 Units of activity during year
Estimated total units of activity

Cr. Contributed CapitalReacquisition

of Shares

Dr. Contributed CapitalReacquisition of

Shares (if any)

Cr. Cash (@ market price)

Dr. Retained Earnings

Cr. Cash (@ market price)

Comparison of Dividend Effects

Shareholders Equity

Note: 1. If depreciation is calculated for partial periods, the straight-line and diminishing-balance
methods must be adjusted for the relevant proportion of the year. Multiply annual depreciation
expense by the number of months expired in the year divided by 12 months.
2. The total depreciation for the diminishing-balance method is limited to depreciable cost
(cost residual value).

Impairment Loss

Assets

Liabilities

Share Capital

Retained
Earnings

Number
of Shares


NE

NE

NE

NE

Stock dividend

NE

Stock split

NE

NE


NE


NE

Cash dividend

Note:  means increase, means decrease, NE means no effect.

Comprehensive
income (loss)

Dr. Impairment Loss

Cr. Accumulated Depreciation

Profit

1. Update depreciation for

appropriate portion of current
year

Dr. Depreciation Expense

Cr. Accumulated Depreciation

2. Calculate carrying amount

Cost Accumulated depreciation = Carrying amount

3. Calculate gain or loss

Proceeds Carrying amount = Gain (loss)

4. Record disposal

Dr. Cash (or Receivable)

Dr. Accumulated Depreciation
Dr. Loss (or credit Gain)
Cr. Property, Plant, and Equipment

Month

Blended principal
and interest

Month

Statement of Financial
Position Classification
Short-term investments
(current assets)
Long-term investments
(non-current assets)

(A)
Cash
Payment

(C)
Reduction
of Principal

(B)
Interest Expense

Variable D*  Annual Interest Principal

1
BC
balance  #
Rate  
12
of months
Fixed
BC

D*  Annual Interest
1
Rate  
12

AB

(D)
Principal
Balance

Strategy
Nonstrategic
Nonstrategic

Strategic

D* C

Type of Investment
Trading investments (debt
or equity)
Equity investments without
significant influence or
control, with determinable
fair values
Debt investments held to earn
interest revenue
Investments in associates
(equity investments with
significant influence)

D* C

* From the prior period

Valuation Model
Fair value
Fair value (with
option under IFRS
to use fair value
through OCI)
Amortized cost
Equity method (with
option to use cost or
fair value model under
ASPE). Consolidation
required if control
exists (with option to
use equity, cost or fair
value under ASPE).

Comparison of Fair Value Model and Equity Method of Accounting for Equity
Investments

Bonds Payable
Premium

Market interest rate < Coupon interest rate

Face Value

Market interest rate = Coupon interest rate

Discount

Market interest rate > Coupon interest rate

Transaction

Fair Value (no significant

influence)

(1)
Bond Interest Expense
Market
(Effective)
Interest Rate

(2)
Bond Interest Paid

Face Amount
of Bonds

Coupon
Interest Rate

(3)

Amortization
Amount

Equity (significant influence)

Acquisition

Dr. Trading Investments

Cr. Cash

Dr. Investment in Associates

Cr. Cash

Investee reports profit

No entry

Dr. Investment in Associates

Cr. Revenue from
Investment in Associates

Investee pays dividends

Dr. Cash
Cr. Dividend Revenue

Dr. Cash
Cr. Investment in Associates

Adjustment for increase

in fair value (entry is
opposite for decrease)

Dr. Trading Investments

Cr. Unrealized Gain on
Trading Investments

No entry

Amortization of Bond Premium or Discount

Accumulated other comprehensive

income (loss)
(statement of changes in equity and
shareholders equity section of
statement of financial position)

Reporting and Valuation of Investments

Instalment Notes PayablePayment Schedule

Fixed principal
payments

Other comprehensive income (loss)

INVESTMENTS (Chapter 12)

NON-CURRENT LIABILITIES (Chapter 10)

Interest
Period

Retained earnings
(statement of changes in equity
and shareholders equity section
of statement of financial
position)

Disposal of Property, Plant, and Equipment

Carrying Amount of
Bonds at Beginning
of Period

Comprehensive Income

Carrying amount Recoverable amount = Impairment loss

Payments

Dr. Common/Preferred Shares (@ average

cost)

Note: The unrealized gain (or loss) on trading investments is reported as other revenues and gains
(or other expenses and losses) in the income statement.

EP3

Comparison of Long-Term Bond Investment and Liability Journal Entries

Investor (amortized cost
model)

Transaction

Investee

Purchase/issue of bonds

Dr. Long-Term Investments

Cr. Cash

Dr. Cash
Cr. Bonds Payable

Interest receipt/payment
and amortization of
discount or premium

Dr. Cash
Dr. Long-Term Investments (dr.
for discount; cr. for premium)
Cr. Interest Revenue

Dr. Interest Expense

Cr. Bonds Payable
(dr. for premium;
cr. for discount)
Cr. Cash

Sale of investment

Dr. Cash
Dr. Realized Loss (or credit
Gain)
Cr. Long-Term Investments

No entry

Liquidity Ratios

Chapter Ratio

(Chapter 13)

Desired
Result

Current assets  Current liabilities

Short-term
debt-paying ability

Higher

Current assets
Current liabilities

Working
capital

Current
ratio

Short-term
debt-paying ability

Higher

13

Cash current Net cash provided (used) by operating activities Short-term


debt-paying ability
debt
Average current liabilities
(cash basis)
coverage

Higher

Receivables
turnover



Liquidity of receivables

Higher

Average
collection
period

Number of days
receivables are
outstanding

Lower



Liquidity of inventory

Higher

STATEMENT OF CASH FLOWS

What the
Ratio Measures

Formula

Inventory
turnover
Days in
inventory



Net credit sales

Average gross accounts receivable
365 days

Receivables turnover
Cost of goods sold



Average inventory
365 days



Inventory turnover

Number of days inventory Lower

is on hand

Business Activities
1. Operating activities: Include cash effects of transactions that create revenues and expenses.
They affect profit.
2. Investing activities: Include (a) purchasing and disposing of long-term investments and longlived assets and (b) lending money and collecting the loans. Investing activities generally
affect non-current asset accounts.
3. Financing activities: Include (a) obtaining cash from issuing debt and repaying the amounts
borrowed and (b) obtaining cash from shareholders and paying them dividends. Financing
activities generally affect non-current liability and shareholders equity accounts.

Solvency Ratios

Chapter Ratio
2, 10

Steps in Preparing the Statement of Cash Flows

1. Prepare operating activities section: Determine net cash provided (used) by operating activities by converting profit from accrual basis to cash basis using either indirect or direct method
(preferred). To do this, analyze the current years income statement, relevant current asset
and current liability accounts from comparative statement of financial position, and selected
information. In the indirect method, this is done by converting total profit from accrual basis
to cash basis. In the direct method, this is done by converting each individual revenue and
expense account from accrual basis to cash basis.
2. Prepare investing activities section: Determine net cash provided (used) by investing activities by analyzing changes in non-current asset accounts from comparative statement of
financial position and selected information.
3. Prepare financing activities section: Determine net cash provided (used) by financing activities by analyzing changes in non-current liability and equity accounts from comparative
statement of financial position and selected information.
4. Complete statement of cash flows: Determine net increase (decrease) in cash. Compare net
change in cash reported on statement of cash flows with change in cash reported on statement
of financial position to make sure amounts agree.

PERFORMANCE MEASUREMENT (Chapter 14)

Debt
to total
assets

Discontinued operations

Income statement (presented separately, net of income tax,

after profit from continuing operations)

Changes in accounting
policy

Statement of changes in equity (adjustment, net of income

tax, of beginning retained earnings)

Analysis-Period Amount

Analysis-Period Amount
Horizontal Percentage
Change for Period

13

Cash
Long-term debt-paying
Net cash provided (used) by operating activities
total debt 
ability (cash basis)
Average total liabilities
coverage

Higher

13

Free cash
flow

Net cash provided (used) by operating

activities  Net capital expenditures 
Dividends paid

11

Return on
common
shareholders equity

Return on
assets

Profit margin

Asset
turnover

Gross profit
margin

2, 11

Earnings
per share

Priceearnings
ratio

11
11

Analysis Amount

Base Amount

Higher

Payout ratio
Dividend
yield

Desired
Result

Formula

What the Ratio Measures

Profit  Preferred dividends

Average common shareholders equity

Profitability of shareholders investment

Higher

Overall profitability of
assets

Higher



Profit
Net sales

Profit generated by each

dollar of sales

Higher

Net sales
Average total assets

How efficiently assets are

used to generate sales

Higher

Margin between selling

price and cost of goods
sold

Higher

Profit earned on each

common share

Higher



Profit
Average total assets





Gross profit



Net sales

Profit  Preferred dividends

Weighted average number of common shares



Earnings per share

Relationship between mar- Higher

ket price per share and
earnings per share

Cash dividends
Profit

Percentage of profit distrib- Higher

uted as cash dividends

Market price per share





Cash available from

operating activities for
discretionary purposes

Profitability Ratios

Base-Period Amount

Vertical Percentage
of Base Amount

Lower

Higher

Vertical (Common-Size) Analysis

Percentage of total assets

provided by creditors
Ability to meet interest
payments

Base-Period Amount

Base-Period Amount

Profit  Interest expense  Income tax

expense (EBIT)
Interest expense

Desired
Result

Times
interest
earned

Horizontal (Trend) Analysis

Horizontal Percentage
of Base-Period Amount

Total liabilities
Total assets



What the Ratio

Measures

10

Chapter Ratio

Irregular Items

Formula

Dividend per share



Market price per share

Income generated for the

shareholder by each
share, based on the
market price per share

Higher

EP4

SAMPLE FINANCIAL STATEMENTS

Statement of Financial Position

Multiple-Step Income Statement (perpetual inventory system)

Name of Company
Statement of Financial Position
End of the Period

Name of Company
Income Statement
Period Ended

Assets
Current assets

Sales revenues

(Examples: cash, short-term (trading) investments, accounts

Sales
Less: Sales returns and allowances

$X

receivable, merchandise inventory, supplies, prepaids)

$X
X

Sales discounts
Net sales

$X

Long-term investments
X

(Examples: equity investments, debt investments)

Cost of goods sold

Gross profit

Property, plant, and equipment

(Examples: land, land improvements, buildings,
equipment, natural resources)

Operating expenses

$X

Less: Accumulated depreciation

(Examples: salaries, advertising, freight, rent,

depreciation, utilities, insurance)

Profit from operations

(net of accumulated amortization)

Other revenues and gains

X
$X
Liabilities and Shareholders Equity

Liabilities

Profit

Total assets

Income tax expense

Goodwill

Other expenses and losses

(Examples: interest)

$X

Indefinite life intangibles (Examples: trademarks, franchise)

$X

Profit before income tax

Limited life intangibles (Examples: patents, copyrights)

(Examples: interest)

Intangible assets

Current liabilities

$X

(Examples: accounts payable, accruals, unearned revenues,

bank loan payable, current portion of non-current liabilities)

Income Statement (cost of goods sold detail in periodic inventory system)

Cost of goods sold
Beginning inventory
Purchases
Less: Purchase returns and allowances
Net purchases
Add: Freight in
Cost of goods purchased
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold

$X

Preferred shares

Profit
Other comprehensive income (loss)
(Examples: revaluations of property, plant, and equipment; foreign currency
translation adjustment)
Comprehensive income (loss)

X
$X

Statement of Changes in Equity

Name of Company
Statement of Changes in Equity
Period Ended
Accumulated
Common Shares
Other
Number
Additional
of
Legal Contributed Retained Comprehensive
Shares Capital
Capital
Earnings Income (Loss) Total
Balance, beginning of period
X
$X
$X
$X
$X
$X
Issued shares
X
X
X
(X)

Stock dividends

(X)

(X)

(X)

(X)

(X)

Comprehensive income
Profit
Other comprehensive
income (loss)
Balance, end of period

EP5

$X

$X

Contributed capitalreacquisition of shares

$X

Retained earnings (deficit)

Accumulated other comprehensive income (loss)

Total liabilities and shareholders equity

X
$X

Note: The classifications and ordering within the classifications have been presented in order of
liquidity in the above statement of financial position. They may be presented in alternate orders,
such as a reverse order of liquidity, as well.

$X

(X)

$X

Common shares

STOP AND CHECK: (1) Total assets on the statement of financial position must equal total liabilities and shareholders equity, and (2) ending shareholders equity on the statement of financial
position must equal ending shareholders equity on the statement of changes in equity.

Name of Company
Statement of Comprehensive Income
Period Ended

(X)

X
X

Contributed capital

X
X
X
$X

Cash dividends

(Examples: mortgage payable, bonds payable)

Total liabilities
Shareholders equity

$X
X
X
X

Statement of Comprehensive Income

Reacquisition of shares

$X

Non-current liabilities

$X

X
X
$X

X
$X

Order of Liquidity

Order of Reverse Liquidity

Current assets

Non-current assets

Non-current assets

Current assets

Current liabilities

Shareholders equity

Non-current liabilities

Non-current liabilities

Shareholders equity

Current liabilities

Statement of Cash Flows (direct method)

Statement of Cash Flows (operating activities section in indirect method)

Operating activities

Name of Company
Statement of Cash Flows
Period Ended
Operating activities
Cash receipts (Examples: from sales of goods and services to customers,
from receipts of interest and dividends on loans and investments)
Cash payments (Examples: to suppliers, for operating expenses, to
employees, for interest, for income tax)
Cash provided (used) by operating activities
Investing activities
(Examples: purchase/sale of non-current assets)
Cash provided (used) by investing activities
Financing activities
(Examples: issue/repayment of non-current liabilities, issue of shares,
payment of dividends)
Cash provided (used) by financing activities
Net increase (decrease) in cash
Cash, beginning of period
Cash, end of period

Profit
Add:

$X
Noncash expenses (Examples: depreciation, amortization)
Losses (Examples: disposal of assets, fair value adjustment of
investments)

$X
Deduct:
(X)
$X

$X
X

Decreases in related noncash current assets

Noncash revenues (Examples: amortization of bond

discount for investor)

(X)

Gains (Examples: disposals of assets, fair value

adjustment of investments)

(X)

Increases in noncash current assets

(X)

Cash provided (used) by operating activities

X
$X

X
X
X
X
$X

STOP AND CHECK: Cash, end of the period, on the statement of cash flows must equal cash
presented on the statement of financial position.

EP6