LESSON 1 – THE FINANCIAL STATEMENTS

Theories/concepts
(NEEDED for this lesson – ACCOUNTING 105 BOOK
INTERMEDIATE ACCOUNTING 3 by Valix and other authors)

The Balance Sheet (Statement of Financial Position)

• Go to page __ Illustration(s) – report form/account form
✓ Examine the sample financial statement
✓ How many samples do we have?
✓ Take note of the similarities and differences
✓ Format is NOT SPECIFIED.
✓ Standard DOES NOT prescribe the order or format which
the line items are to be presented. “Common practice”
✓ Other formats may be equally appropriate provided the
distinction is CLEAR.
✓ Statement of financial position is an expansion of the
ACCOUNTING EQUATION:
“asset equals liability + equity”
✓ PLEASE take note of the last illustration….
The Income Statement (Statement of Financial Performance)
• Go to page_ illustration(s)– functional/natural presentation
✓ Examine the sample financial statement
✓ How many samples do we have?
✓ Take note of the similarities and differences
✓ Management is required to select the presentation that is
RELIABLE And MORE RELEVANT (cost of goods sold
method).
✓ Functional is traditional, common, cost of goods sold
method, classifies expenses according to their functions
such: part of cost of goods sold, distribution (marketing)
costs, administrative activities and other activities.
✓ Natural – nature of expense method. Expenses are
aggregated according to their nature and presented as one
item.
Statement of comprehensive income
• Go to page___ illustration –
✓ Examine the sample financial statement
✓ Take note of the similarities and differences (compare
with Income Statement)
✓ Similarities/differences
✓ To show total comprehensive income. It provides a more
comprehensive information on financial performance
measured more broadly than the income as traditionally
computed.
✓ Comprehensive income IS NOT CARRIED TO RETAINED
EARNING UNAPPROPRIATED. Where is it carried?
Net OTHER COMPREHENSIVE INCOME is carried to
“RESERVES” or shown separately in the statement of
changes in equity.
Statement of Changes in Equity/Statement of retained earnings
• Go to page___ illustration –
✓Examine the sample financial statements
✓Define EQUITY
✓In a corporate entity -subclassifications
✓SCE – shows movement in the elements or components of
shareholders’ equity and they are: (3)
✓SRE – changes affecting DIRECTLY retained earnings. IS
NOW PART OF THE statement of changes in equity.

Statement of Cash Flows

• Go to page___ Illustrations: Operating activities (direct and
indirect methods); Comprehensive (alternative approach)
✓Examine the sample financial statements
✓Information about cash receipts and cash payments
✓Classification: Operating, Investing and Financing
Note:
1. What is expected from us? To be able to prepare basic
financial statements.
2. Take note of the chapters covered.
3. Concepts, principles and procedures.
4. Examination: theory and problems (open and multiple
choice). Uploaded in the facebook account and solutions
will be submitted to my gmail account
(elesbebot@gmail.com)