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Financial Statements
Chapter 1
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Learning Objective 1
Explain why accounting is the language
of business
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Internal to Business
Investors
Creditors
Government (e.g., CRA and
Management
regulators)
Financial
Non-profit
organizations
Accountin
Customers
g
Suppliers
Employees and employee
unions
Manageri
al
Accountin
g
Back
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Financial Statements
Financial Statements are the business documents
that companies use to report the results of their
activities to various user groups. The system of
accounting produces the following statements:
Income
Statement
Statement of
Retained Earnings
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Balance
Sheet Statement of
Cash Flow
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Financial
Statement
Answer
Income
statement
Revenues
Expenses
Net income or (net loss)
Beginning retained
earnings
+ Net Income (-Net Loss)
Dividends
Ending retained earnings
Balance sheet
Assets = Liabilities +
Owners equity
Statement of
cash flows
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Statement of Earnings
Reports two main categories
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Income Statement
Reports revenue and expenses
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ABC Corporation
Income Statement
Year Ended December 31, 2015
Net sales
$XX,XXX
Other revenue
XX,XXX
Total revenues
XX,XXX
XX,XXX
Gross profit
XX,XXX
XX,XXX
XX,XXX
Interest expense
XX,XXX
XX,XXX
XX,XXX
Net Income
$XX,XXX
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Subtracts dividends
Reports ending retained earnings balance
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ABC Corporation
Statement of Retained Earnings
Year Ended December 31, 2015
Retained earnings, December 31,
2014
Plus: Net income
Less: Dividends
Retained earnings, December 31,
2015
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$XX,XXX
XX,XXX
XX,XXX
$XX,XXX
Assets
Liabilities
Stockholders equity
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Balance Sheet
Reports assets, liabilities, and stockholders
equity
stockholders equity
Reports retained earnings which comes from the
statement of retained earnings
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Assets
Liabilities
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Recognition
(Identification)
Measurement (Valuation)
Disclosure (Classification)
Assets: Recognition
Future benefits
R&D expensing
Human Capital
Quantifiable
Intangibles
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Assets: Measurement
Historical Cost
Market Value
Which Measure?
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Assets: Disclosure
Current Assets
Expected to be converted
Long-term Assets
Liabilities: Recognition
Past transactions
Promise of payment
Quantifiable
Known date
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Liabilities: Measurement
Monetary liabilities: future cash flows or the
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Liabilities: Disclosure
Current Liabilities
Long-term Liabilities
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business assets
Represents residual interest in assets after all
liabilities are settled
Consists of:
(Common stock
Contributed surplus.. Chapter 11
(Retained earnings
Accumulated other comprehensive income (loss)
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Operating
Investing
Financing
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Investing activities
Financing activities
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Income
Statement
Statement of
Retained
Earnings
Balance Sheet
Statement of
Cash Flows
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Revenues
$XX,XXX
Expenses
(XX,XXX)
Net income
$XX,XXX
$XX,XXX
XX,XXX
Cash dividends
(XX,XXX)
$XX,XXX
$XX,XXX
XX,XXX
Cash dividends
(XX,XXX)
$XX,XXX
Balance Sheet
December 31, 2015
Assets
$XX,XXX
Liabilities
$XX,XXX
Stockholders equity:
Common stock
$XX,XXX
Retained earnings
Total liabilities
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XX,XXX
and equity
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$XX,XXX
Balance Sheet
December 31, 2015
Assets
$XX,XXX
Liabilities
$XX,XXX
Stockholders equity:
Common stock
$XX,XXX
Retained earnings
XX,XXX
$XX,XXX
$XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
$XX,XXX
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Cash from
the Asset
section of
the
Balance
Sheet
equals
ending
Cash on
the
Statement
of Cash
Flows
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GAAP
CICA Handbook: official source of GAAP;
sanctioned by federal and
provincial governments
and the Canadian Securities Administrators
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Accountings Conceptual
Framework
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Objective
Fundamental
Qualitative
Characteristics
Relevance
(includes materiality)
Comparability
Verifiability
Faithful representation
Timeliness
Enhancing
Qualitative
Characteristics
Constraints
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Cost
Financial Reporting
Standards
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Understandabili
ty
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