The document provides an overview of basic financial accounting concepts. It discusses that [1] accounting conveys business information via financial statements to interested parties like investors and creditors. It also explains that [2] companies have three main activities - financing, investing and operating - and that [3] the four key financial statements are the balance sheet, income statement, retained earnings statement, and statement of cash flows. The balance sheet specifically reports a company's assets, liabilities, and equity at a point in time.
This presentation aims:
– To understand the purpose of the Statement of Changes in Equity
– To appreciate that the presentation of the Statement of Changes in Equity is dependent on the form of business organization
– To identify the elements of the Statement of Changes in Equity
– To determine the nature of the different equity accounts used by corporations
– To prepare a Statement of Changes in Equity
This presentation aims:
– To understand the purpose of the Statement of Changes in Equity
– To appreciate that the presentation of the Statement of Changes in Equity is dependent on the form of business organization
– To identify the elements of the Statement of Changes in Equity
– To determine the nature of the different equity accounts used by corporations
– To prepare a Statement of Changes in Equity
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IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.
SmartPrep's teaching methodology ensures better learning through unique interactive teaching-learning sessions, conducted by our certified & highly qualified faculty members at our state-of-the -art centres spread across Delhi-NCR and other cities of India. SmartPrep has programs in Maths, Science, English, Accountancy and Economics for Classes VII to XII.
IAS-1: Presentation of Financial StatementsAmit Sarkar
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.
Wayne Lippman presents Accounting BasicsWayne Lippman
Wayne Lippman presents Accounting Basics. This basic overview of the accounting process from Wayne Lippman CPA covers the basic principals of accounting. It includes discussions of accounting ethics, accounting process, roles, Generally Accepted Accounting Practices (GAAP).
A presentation for Accounting students on the basic elements of the accounting equation. Covers definitions of assets, liabilities, owner's equity, revenue and expenses. Designed for VCE Accounting students.
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In 9. 3-1 BALANCE SHEET The assets of Dallas & Associates consist e.pdfeyewatchsystems
In 9. 3-1 BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets
and net plant and equipment. The firm has total assets of $2.5 million and net plant and
equipment equals $2 million. It has notes payable of $150,000, long-term debt of $750,000, and
total common equity of S1.5 million. The firm does have accounts payable and accruals on its
balance sheet. The finm only finances with debt and common equity, so it has no preferred stock
on its balance sheet. a. What is the company\'s total debt? b. What is the amount of total
liabilities and equity that appears on the firm\'s balance sheet? c. What is the balance of current
assets on the firm\'s balance sheet? d. What is the balance of current liabilities on the firm\'s
balance sheet? e. What is the amount of accounts payable and accruals on its balance sheet?
(Hint: Consider this as a single line item on the firm\'s balance sheet.) f. What is the firm\'s net
working capital? g. What is the firm\'s net operating working capital? h. What is the explanation
for the difference in your answers to parts f and g?
Solution
(a) Total Assets = $ 2.5 million, The firm\'s total assets are entirely composed of current assets
and net plant and equipment.
Net Plant and Equipment = $ 2 million and Current Assets = Total Assets - Net Plant and
Equipment = 2.5 - 2 = $ 0.5 million
Notes Payable = $ 150000 and Long-Term Debt = $ 750000
Total Common Equity = $ 1.5 million
Owner\'s Equity + Liabilities = Notes Payable + Long-Term Debt + Accruals + Accounts
Payable + Total Common Equity = Total Assets = $ 2.5 million
0.15 + 0.75 + Accounts Payable + Accruals + 1.5 = 2.5
Accounts Payable + Accruals = $ 0.1 million
Total Debt includes long-term capital financing debt and short-term interest bearing debt only.
Accounts Payable and Accruals do not form a part of a firm\'s total debt.
Hence, total debt = Notes Payable + Long-Term Debt = 150000 + 750000 = $ 900000
(b) Total Liabilities = Accounts Payable + Accruals + Long-Term Debt + Notes Payable = 0.1 +
0.75 + 0.15 = $ 1 million
Owner\'s Equity = Total Assets - Total Liabilities = 2.5 - 1 = $ 1.5 million
(c) Current Assets = Total Assets - Net Plant and Equipment = 2.5 - 2 = $ 0.5 million
(d) Current Laibility = Accruals + Accounts Payable = $ 0.1 million
NOTE: The current portion of notes payable(amount due within one year or accounting period)
is treated as current liability and the remaining portion is treated as non-current liability. As the
notes payable portion does not mention the amount due within a year, the entire value of notes
payable is treated as non-current laibility.
NOTE: Please raise separate queries for solutions to the remaining sub-parts..
Summary Notes A2--Balance Sheet 1 The Balan.docxrhetttrevannion
Summary Notes: A2--Balance Sheet
1
The Balance Sheet (The Statement of Financial Position) records information on:
Assets—the value of things that are owned
Liabilities—the value of things that are owed
The balance sheet tells us what the company is worth on a particular date (assuming we do a good job
valuing assets and liabilities).
The Accounting Equation always holds:
Liabilities + Owners’ Equity = Assets
Balance sheet example (thousands):
J&M, Inc. BALANCE SHEET December 31
2015 2014 Changes
Assets
Current assets:
Cash and cash equivalents
Short-term marketable sec.
Accounts receivable
Inventory
Prepaid expenses
Deferred charges
Total current assets
$ 8,500
3,000
23,700
37,700
2,000
2,500
77,400
$ 6,100
5,000
19,500
39,800
1,500
3,000
74,900
+ $2,400
– 2,000
+ 4,200
– 2,100
500
– 500
+ 2,500
Long-term Assets:
Plant and equipment
Less accumulated depreciation
Total assets
154,000
(70,000)
$161,400
145,000
(50,000)
$169,900
+ 9,000
+ 20,000
– 8,500
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Wages payable
Accrued taxes
Total current liabilities
10,000
16,000
2,000
28,000
26,000
15,000
3,500
44,500
– 16,000
+ 1,000
– 1,500
– 16,500
Other liabilities
Long-term debt
Total liabilities
30,000
$58,000
32,000
$76,500
– 2,000
– 18,500
Shareholders’ equity
Preferred stock, 6%, $100 par value
Common stock, $4 par value (10,000 shares)
Additional paid-in capital
Retained earnings
Total owners’ equity
Total liabilities and equity
10,000
40,000
11,000
42,400
103,400
$161,400
10,000
40,000
11,000
32,400
93,400
$169,900
0
0
0
+ 10,000
+ 10,000
– 8,500
Notes about Assets:
• Assets are arranged in order of liquidity--cash is listed first
Summary Notes: A2--Balance Sheet
2
o Liquidity = easy to convert to cash ($)
• Current assets = convertible to cash within a year
o Firms with good LT assets but lack of cash have a “cash-flow” problem
• Short-term marketable securities--bonds that can be easily sold-like US govt. debt.
• Accounts receivable—owed to the firm by customers (30- or 45-day accounts receivable)
• Inventory--$ value invested in raw materials, work in process and finished goods
o Sometimes tricky to value--Last year’s unsold holiday sweaters? Gold stock of a jeweler?
• Prepaid expenses (e.g.: insurance policy or rent)
• Deferred charges (prepaid expenses for intangible asset like goodwill or startup costs in the pre-
operating period).
• Long-term Assets = harder to convert to cash
o Purchase price of plant and equipment
• Depreciation—With exception of land, an allowance is made for the “using up” of assets
• Total Assets = Current + LT Assets
Notes about Liabilities:
• Current liabilities must be paid in the next year
o Pay suppliers for raw.
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2. Part One
A. Introduction
B. Business Activities
C. Financial Statements
D. Balance Sheet
E. Balance Sheet Elements
F. Balance Sheet Equation
3. A. INTRODUCTION
1. Accounting is a language – the language of
business
2. The purpose of any language is to convey
information
3. Accounting conveys information about business
activities to interested parties
4. Accounting information is communicated to
interested parties outside the company via
financial statements
• Most important outside users of accounting
information are investors and creditors
5. Financial statements also provide information to
managers inside the company
4. B. BUSINESS ACTIVITIES
There are three primary activities conducted by business
enterprises:
Two sources of financing: (a) equity financing (sale of capital
Financing – obtaining (bank loans, issuance make
1. stock) and (b) debt financingcash to be able to (a) of bonds)
investments and (b) conduct operating activities –
2. Investing – using cash to (a) purchase capital assets (e.g.,
buildings, machinery, equipment, land) needed to conduct
operating activities, (b) purchase capital stock of other
companies for strategic purposes (e.g., purchase of
subsidiary), and (c) invest in income producing financial
investments (e.g., government bonds or bonds of other
companies) (cash management activity)
3. Operating – producing and selling goods and services –
includes using cash to purchase operating assets (such as
inventories) and pay operating expenses (such as wages,
5. C. FINANCIAL STATEMENTS
Companies summarize the results of their
business activities in four financial statements:
1. Balance sheet
2. Income statement
3. Retained earnings statement (or statement of
stockholders’ equity)
4. Statement of cash flows (statement of changes
in financial position)
Balance sheet and income statement are primary
Retained earnings statement and statement of cash
flows are derived from the balance sheet and the
income statement
6. D. BALANCE SHEET
TYPICAL COMPANY
Balance Sheet
December 31, Year 1
(in thousands)
ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT ASSETS CURRENT LIABILITIES
Cash $ 1,449 Accounts payable $ 5,602
Marketable securities 246 Bank loan payable
1,000
Accounts receivable, net 9,944 Accrued liabilities
876
Inventories 10,623 Estimated tax liability
1,541
Prepaid expenses 389 Current portion of long-term debt
500
Total current assets 22,651 Total current liabilities
9,519
NONCURRENT ASSETS NONCURRENT LIABILITIES
Property, plant & equipment 26,946 Long-term debt 2,000
less: Accumulated depreciation (13,534) Deferred income taxes 824
Property, plant & equipment-net 13,412 Total liabilities
12,343
Investments 1,110 STOCKHOLDERS’ EQUITY
Intangible assets 403 Common stock 1,000
Goodwill 663 Additional paid-in capital 11,256
7. D. BALANCE SHEET
The previous slide shows an example of a typical
balance sheet.
The balance sheet reports a company’s assets,
liabilities, and stockholders’ equity at a particular
point in time.
The heading indicates:
Name of company
Name of statement (Balance sheet)
Balance sheet date (the date at which the
company’s “photograph” is being taken)
Measurement unit (e.g., in thousands of dollars)
8. E. BALANCE SHEET ELEMENTS
1. Assets
a. Resources owned (or controlled) by the
company
b. Assets can be acquired in the following ways:
1. Incurring a liability
2. Selling company stock
3. Earning money through profitable
operations
c. Total Assets = Current Assets + Noncurrent
Assets
Current assets – cash and other assets expected
to be converted into cash or used up within one
year from the balance sheet date
9. E. BALANCE SHEET ELEMENTS (cont)
2. Liabilities
a. Obligations to outside parties who have
provided resources to the company
b. Total Liabilities = Current Liabilities +
Noncurrent (or Long-term) Liabilities
Current liabilities – obligations that must be paid
within one year from the balance sheet date
Long-term liabilities – obligations that will be
paid after one year from the balance sheet date
Example – on December 31, Year 1, a bank
loan to be repaid on December 15, Year 2 is a
current liability, but a bank loan to be repaid
on January 5, Year 3 is long-term
10. E. BALANCE SHEET ELEMENTS (cont)
3. Equity
a. Owners’ investment in the company (e.g., stockholders’ equity)
b. Includes amount invested through the purchase of stock (paid-in
capital) and earnings reinvested in the company (retained
earnings)
c. Total Equity = Paid-in Capital + Retained Earnings
d. Paid-in Capital – usually divided between the par value of stock
(Common Stock account) and the amount at which stock was sold
above par value (Additional Paid-in Capital account); for example,
100 shares of $5 par stock is sold for $30 per share:
Common Stock (100 x $5) $
500
Additional Paid-in Capital (100 x $25) 2,500
Total Paid-in Capital $3,000
e. Retained Earnings – the amount of income that has been
generated by the company since its formation that has not
been paid out to the stockholders as dividends:
Cumulative net income
Less: Cumulative dividends paid to stockholders
Equals: Retained Earnings
11. E. BALANCE SHEET ELEMENTS (cont)
Summary of a balance sheet:
Balance Sheet
Assets Liabilities
Current assets Current liabilities
Noncurrent assets Long-term liabilities
Total Stockholders’ equity
Paid-in capital
Retained earnings
12. E. BALANCE SHEET ELEMENTS (cont)
The balance sheet summarizes the resources
(assets) in which a company has invested on
the left side and
How the money was raised to acquire the
resources on the right side
Debt financing (liabilities)
Equity financing (stockholders’ equity)
The left side of the balance sheet summarizes
the company’s investing activities
The right side of the balance sheet
summarizes the company’s financing activities
(Operating activities are summarized on the income statement)
13. F. BALANCE SHEET EQUATION
1. Assets = Liabilities + Equity (A = L + E)
a. This equation is fundamental – after accounting
for each transaction, the equation must remain
in balance
2. Balance sheet equation can be rearranged as:
Assets – Liabilities = Equity
a. Creditors can sue the company if amounts due
are
not paid
b. Equity investors have only a residual claim to
assets after liabilities have been paid
c. Assets – Liabilities also is referred to as net
assets