BU-127 (Midterm Chp 1)

Statement of financial position

Reports assets, liabilities, and shareholders’ equity at a specific date.

Statement of earnings

Reports revenues, expenses, and net earnings for a period.

Statement of changes in equity

Reports changes in shareholders’ equity during the period.

Statement of cash flows

Reports cash inflows and outflows during the period.

Primary external users (3)

Shareholders, creditors, and other external users.

Purpose of the statement of financial position

Shows financial position at a point in time.

Heading of SFP

Name, title, date, unit of measure.

Accounting entity

Organization being reported on.

Three SFP elements

Assets, liabilities, shareholders’ equity.

Basic accounting equation

Assets = Liabilities + Shareholders’ Equity.

Assets

Economic resources controlled by the entity.

Liabilities

Debts owed to creditors.

Shareholders’ equity

Owner financing plus retained earnings.

Contributed capital

Owner investments in the business.

Retained earnings

Profits kept in the business.

Asset ordering (Canada)

Most liquid to least liquid.

Liability ordering

By maturity date.

Primary performance measure

Net earnings.

Accounting period

Time covered by the statements.

Income statement elements

Revenues, expenses, net earnings.

Revenues

Amounts earned from customers.

Expenses

Resources used to earn revenue.

Net earnings equation

Revenues minus expenses.

Why net earnings ≠ cash

Credit sales and timing differences.

Purpose of changes in equity

Explains changes in equity.

Retained earnings equation

Beginning RE + NI – Dividends = Ending RE.

Effect of net earnings

Increases retained earnings.

Effect of dividends

Decreases retained earnings.

Income statement to SFP link

Net earnings increases retained earnings in equity.

Purpose of cash flow statement

Explains change in cash.

Cash flow categories (3)

Operating, investing, financing.

CFO

Cash from earning activities.

CFI

Cash from buying/selling long-term assets.

CFF

Cash from owners and creditors.

Purpose of notes

Provide extra details.

Types of notes

Accounting policies, details, disclosures.

Effective communication

Information is understandable.

Why measurement rules matter

Help interpret numbers correctly.

AcSB

Sets accounting standards in Canada.

Role of AcSB

Establishes reporting standards.

IFRS

Required global standards for public companies.

IASB

Develops IFRS.

Why standards matter

Affect share price and bonuses.

Ethics in accounting

Standards of right and wrong conduct.

Intentional misreporting

Unethical and illegal.

Five ethical principles

Integrity, objectivity, competence, confidentiality, behaviour.

Primary responsibility for accuracy

Management.

Three safeguards

Internal controls, auditors, board oversight.

Independent auditor role

Gives opinion on fairness of statements.

Auditor independence

Ensures objectivity.

Accounting career paths

Public practice or employment.

Why IFRS knowledge matters

Needed to interpret statements correctly.