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Intro. to Financial Accounting I

ACTG 2010 SWinter 2013

Week 2

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Reminders

Lyryx Lab Assignment #1 due next week

By 11:59pm on Tuesday, Jan 22!

Take attendance (final time)

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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 thefinancial statements?

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

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Financial Statements

General purpose

Prepared at least once a year

Report information for a fiscal period

Public companiesmust use IFRS

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Balance Sheet

Financial position at a point in time

Assets = Liabilities + Owners Equity

In-class problemexercise E2-1

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Assets

IFRS criteria:

Controlled by entity

Result of past transaction or event

Provides measurable future benefit

It is probable that the future benefit will berealized by the entity

Consider: inventory, car, advertising

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Liabilities

Obligations to pay $ or provide

goods/services to other entities, as a resultof a past transaction or economic event

May or may not represent a legal liability

Consider: car loan, unearned revenue, warranty..

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Owners Equity

The investment in or value of an entity

Capital Stock

Retained Earnings

Called deficit if negative

In-class exercise E2-10prepare BS

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Revenue = money earned

Expenses = costs incurred to earn money

Revenue less Expenses = Net Income

Reports activities over a period of time

In-class exerciseP2-3prepare IS

Income Statement

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Statement of Retained Earnings

Beginning Retained Earnings

plus Net Income

minus Dividends

Ending Retained Earnings

Often shown at bottom of IS, not as aseparate statement

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Accountingcash 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

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Cash Flow Statement

Summarizes changes to the cash balance

over the fiscal period

Divided into 3 types of activities:

Operating

Investing

Financing

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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

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Notes to Financial Statements

Provide further information/description of

the figures shown on the FS

Disclose basic information regarding the

business of the entity

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Special-Purpose Reports

FS are general purpose

Many users may need more specificinformation

This is referred to as a special-purpose

report when provided by the entity tousers

E.g. operating budget for upcoming year

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Analysis of Financial Statements

Current ratio

Debt-to-equity ratio

Gross margin percentage

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Comprehensive Income

Mentioned in chapter 2

Ignore this concept for purposes of thiscourse

It will be covered in detail in chapter 10(ACTG 2011)

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Wrap-up

In-class problemexercise E2-12

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Next Week

Chapter 3Accounting Cycle