Primary Objective of Financial Reporting Invest?? Borrow $$?? Sell stocks or bonds?? Start new business?? Loan $$?? Extend credit $$?? LO1 de information for decision m © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Objective of Financial Reporting Invest?? Borrow $$?? Sell stocks or bonds?? Start new business?? Loan $$?? Extend credit $$?? LO1 Provide information.
Jan 04, 2016
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Primary Objective of Financial Reporting
Invest??
Borrow $$?? Sell stocks or bonds??
Start new business??
Loan $$??Extend credit $$??
LO1
Provide information for decision making
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Secondary Objectives of Financial Reporting
Reflect prospective cash receipts to
investors and creditors
Reflect prospective cash flows tothe company
Reflect the company’s resources
and claims to its resources
Assets = Liabilities + OE© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Qualitative CharacteristicsUnderstandability –
Relevance –
Reliability –
LO2
Represents what it purports
Has capacity tomake a difference
To those willing to takethe time to understand it
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Qualitative Characteristics
From one period to the next
Consistency
between companies
Comparability
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Qualitative Characteristics
Materiality
Conservatism
Will it make a differenceTo the decision maker?
All else equal, choose Least optimistic estimate
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Basic Structure of a Classified Balance Sheet
Current assets+ Noncurrent (long-term) assets Total assets
Current liabilities+ Noncurrent (long-term) liabilities+ Stockholders’ equity Total liabilities and stockholders’ equity
LO3© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
The Operating Cycle
Inventory
Accounts Receivable
Cash
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Analysis of Liquidity
Of particular interest to bankers and other
creditors
Working Capital
Ability of company to pay debts as they
become due
LO4© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Single-Step Income Statement
Revenues $$Less: expenses ($$)Net income $$
LO5© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Sales– Cost of Goods Sold= Gross Profit Operating expenses:– General and
administrative expenses– Selling expenses= Income from operations+/– Other revenues and expenses= Income before taxes– Income tax expense= Net income
Fourimportantsubtotals
Multiple-Step Income Statement
Analysis of Profitability
Profit Margin %
Of particular interest
to current and potentialinvestors
LO6© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Statement of Retained Earnings
Explains changes in the components of owners’ equity during a period
Net income (net loss) and Dividends Provides an important link between the income statement and the balance sheet
LO7
Statement of Retained Earnings Beginning retained earningsAdd: Net incomeDeduct: DividendsEqual Ending retained earnings
Cash flows from operating activities: $$
Cash flows from investing activities: $$
Cash flows from financing activities: $$
Net increase in cash $$Cash at beginning of year $$Cash at end of year $$
Basic Format of the Statement of Cash Flows
Reconciles change
in cash for
the period
LO8© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Cash flows from operating activities: $$
Cash flows from investing activities: $$
Cash flows from financing activities: $$
Net increase in cash $$Cash at beginning of year $$Cash at end of year $$
Basic Format for the Statement of Cash Flows
Involves the purchase and sale of products or services
Involves the acquisition and saleof long-term or noncurrent assets
Involves the issuance and repaymentof long-term liabilities and stock
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Letter to stockholdersDescription of company’s products and marketsFinancial statementsNotes to financial statementsReport of independent accountants Management discussion and analysisSummary of significant accounting policies
Other Elements of an Annual Report
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
End of Chapter 2
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