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When studying the financial statements you should focus on these questions:
1. What categories of items (often called elements) are reported on each of the four statements? (What type of information does a statement convey, and where can you find it?)
2. What time period (monthly, quarterly, annual) is covered by the financial statements?
3. How are the elements within a statement related? These relationships are usually described by an equation that tells you how the elements fit together.
4. Why is each element important to managers’, owners’ or creditors’ decisions? (How important is the information to decision makers?)
1. STATEMENT OF FINANCIAL POSITION – reports the amount of assets (resources owned), liabilities (amounts owed), and shareholders’ equity of an accounting entity at a point in time.
2. STATEMENT OF COMPREHENSIVE INCOME – reports the revenues less the expenses of the accounting period.
3. STATEMENT OF CHANGES IN EQUITY – reports the way that profit, distribution of profit (dividends), and other changes to shareholders’ equity affected the financial position of the company during the accounting period.
4. STATEMENT OF CASH FLOWS – reports inflows (receipts) and outflows (payments) of cash during the accounting period in the categories of operating, investing, and financing.
1. BALANCE SHEET– reports the amount of assets (resources owned), liabilities (amounts owed), and shareholders’ equity of an accounting entity at a point in time.
2. STATEMENT OF INCOME – reports the revenues less the expenses of the accounting period AND other gains and losses.
3. STATEMENT OF RETAINED EARNINGS – reports the accumulation of profits that have not been distributed to shareholders, distribution of profit (dividends) of the company during the accounting period.
4. STATEMENT OF CASH FLOWS – reports inflows (receipts) and outflows (payments) of cash during the accounting period in the categories of operating, investing, and financing.
Revenues Net sales $ 152,795Expenses Cost of sales 125,474 Sales and marketing 11,699 Distribution 6,813 General and administrative 5,987 Finance costs 708 Total expenses 150,681 Earnings before income taxes 2,114 Income tax expense 847 Net earnings for the year $ 1,267Other comprehensive income (loss) Foreign currency translation differences (13) Total comprehensive income (loss) for the year $ 1,254
Earnings per share $ 2.92
SUN-RYPE PRODUCTS LTD.Statement of Comprehensive Income
(in thousands of Canadian dollars, except for EPS)For the Year Ended December 31, 2012
Equity, beginning of the periodPlus: Net earnings for the yearPlus: Other comprehensive incomeLess: DividendsPlus/Less: Other changes, netEquity, end of the period
Balance as at Jan. 1, 2012 $ 18,518 $ 27,914 ($ 53) Net earnings for the year 1,267 Other comprehensive income (loss) (13) Repurchase and cancellation of shares (97) Distribution of dividends (500) Balance as at Dec. 1, 2012 $ 18,421 $ 28,681 ($ 66)
SUN-RYPE PRODUCTS LTD.Statement of Changes in Equity
(in thousands of Canadian dollars)For the Year Ended December 31, 2012
Operating activities Cash collected from customers 152,181 Cash paid to trade suppliers (111,202) Cash paid for operating expenses (23,907) Cash paid for interest (826) Cash received for taxes (income tax refund) 1,690 Net cash flow from operating activities 17,936 Investing Activities Cash paid to purchase property, plant, and equipment (1,418) Net cash flow used for investing activities (1,418) Financing Activities Cash received from borrowings 1,502 Repayment of borrowings (14,264) Repurchase of own shares (97) Cash paid for dividends (500) Net cash provided by financing activities (13,359) Net increase in cash during the year 3,159 Cash at beginning of year 571 Effect of exchange rate changes on cash (3) Cash at end of year 3,727$
SUN-RYPE PRODUCTS LTD.Statement of Cash Flows
(in thousands of Canadian dollars)For the Year Ended December 31, 2012
2. Ending retained earnings from the statement of changes in equity is one of the three components of shareholders’ equity on the statement of financial position.
Statement of Changes in Equity Statement of Financial PositionRetained Earnings Cash $ 3,727
Beginning retained earnings $ 27,914 Other assets 87,246 Net earnings 1,267 Total assets $ 90,973 Dividends (500) Liabilities $ 43,937 Ending retained earnings $ 28,681 Contributed capital 18,421 Retained earnings 28,681 Other equity components (66)
3. The change in cash on the statement of cash flows is added to the beginning-of-year balance in cash to arrive at end-of-year cash on the statement of financial position.
Statement of Cash Flows Statement of Financial Position Cash flows from operating activities $ 17,933 Cash $ 3,727 Cash flows from investing activities (1,418) Other assets 87,246 Cash flows from financing activities (13,359) Total assets $ 90,973 Change in cash $ 3,156 Liabilities $ 43,937 Beginning cash balance 571 Contributed capital 18,421 Ending cash balance $ 3,727 Retained earnings 28,681 Other equity components (66)
International PerspectiveInternational Financial Reporting Standards
Since 2002, there has been substantial movement toward the adoption of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
Examples of jurisdictions currently requiring the use of IFRS include:• All countries in the European Union• Australia and New Zealand• Hong Kong, China, India, Malaysia, and South Korea• Israel and Turkey• Argentina, Brazil and Chile• Canada and MexicoIn the United States, the Securities and Exchange Commission (SEC) now allows foreign companies whose shares are traded in the U.S. to use IFRS and is considering allowing the same for domestic companies in the future.
To ensure the accuracy of the company’sfinancial information, management: Maintains a system of controls. Hires outside independent auditors. Forms a committee of the board of directors to
review these two safeguards.
Management Responsibility and the Demandfor Auditing
The Chartered Professional Accountants of Canada (CPA) and the Canadian Institute of Chartered Accountants (CA) require that all members adhere to a professional code of
ethics. The other accounting professions have similar requirements.
Appendix 1B: Employment in the Accounting Profession Today
Professional Designations
CPA
CA
CMA
Career Opportunities Public Accounting Audit and Assurance Services Management Consulting Services Tax ServicesEmployment by Organizations Internal accounting External reporting Tax planning Various other functionsEmployment in the Public and Not-for-Profit Sector