Intro.

to Financial Accounting I
ACTG 2010 S Winter 2013 Week 2

Reminders

Lyryx Lab Assignment #1 due next week

By 11:59pm on Tuesday, Jan 22!

Take attendance (final time)

Financial Statements

What are they? Lets look at an example:

http://www.alarmforce.com/pdf/2011_Annual_Report.pdf

What information can we obtain from the financial statements?

Financial Statements
General purpose Prepared at least once a year Report information for a fiscal period Public companies must use IFRS

Financial Statements
Balance Sheet Income Statement Statement of Retained Earnings Cash Flow Statement Notes

Balance Sheet

Financial position at a point in time Assets = Liabilities + Owners Equity

In-class problem exercise E2-1

Assets

IFRS criteria:
Controlled by entity Result of past transaction or event Provides measurable future benefit It is probable that the future benefit will be realized by the entity

Consider: inventory, car, advertising

Liabilities

Obligations to pay $ or provide goods/services to other entities, as a result of a past transaction or economic event May or may not represent a legal liability
Consider: car loan, unearned revenue, warranty..

Owners Equity

The investment in or value of an entity

Capital Stock Retained Earnings

Called deficit if negative

In-class exercise E2-10 prepare BS

Balance Sheet - Presentation

Assets and liabilities are classified as either current on long-term (non-current)

Current = used up, sold, converted into cash or settled within 1 year or 1 operating cycle

In-class exercise classify amounts on the BS you just prepared

Income Statement
Revenue = money earned Expenses = costs incurred to earn money Revenue less Expenses = Net Income Reports activities over a period of time

In-class exercise P2-3 prepare IS

Link Between BS & IS

Revenues less expenses = net income Net income (NI) increases value of entity Owners equity (OE) = value of entity Hence, NI causes OE to increase Concept of retained earnings

Statement of Retained Earnings

Beginning Retained Earnings plus Net Income minus Dividends Ending Retained Earnings

Often shown at bottom of IS, not as a separate statement

Accounting cash vs. accrual

Cash actg. measures impact of transactions involving cash Accrual accounting measures economic impact of transactions and economic events, whether they involve cash or not

See chart on page 93 of textbook

Eg. Consider amortization

Cash Flow Statement

Summarizes changes to the cash balance over the fiscal period Divided into 3 types of activities:
Operating Investing Financing

Link Between BS, IS and CFS

Refer to chart on page 53 of the textbook This is fundamental

Need IS to do BS, so usually do IS first

Notes to Financial Statements

Provide further information/description of the figures shown on the FS Disclose basic information regarding the business of the entity

Special-Purpose Reports
FS are general purpose Many users may need more specific information This is referred to as a special-purpose report when provided by the entity to users

E.g. operating budget for upcoming year

Analysis of Financial Statements

Current ratio Debt-to-equity ratio Gross margin percentage

Comprehensive Income

Mentioned in chapter 2 Ignore this concept for purposes of this course It will be covered in detail in chapter 10 (ACTG 2011)

Wrap-up

In-class problem exercise E2-12

Next Week

Chapter 3 Accounting Cycle