Classification: Restricted

Statement of Profit or Loss

★ results of operation
★ for a given period of time either
monthly, quarterly, semi-annually or
annually
★ financial performance
★ income earned through utilization of
sources
★ presentation into 2 forms:
○ single statement
○ two statements (1) displaying
profit or loss (2) components of
other comprehensive income

Classification: Restricted
Classification: Restricted
 Statement of Changes in Equity

★ summarizes the changes in owner’s equity

★ reflects increase or decrease in its net assets

= (+) additional investments by the

owner
(+) profit during the period
(-) withdrawals by the owner
(-) loss during the period

★ beginning balance and additional

investments are taken from the general
ledger
★ profit or loss comes from the income
statement
★ withdrawals are found in the balance sheet
column of the worksheet
Classification: Restricted
Classification: Restricted
 Statement of Financial Position

★ financial position as of a particular date

★ to evaluate an entity’s liquidity - availability of cash in the near
future after taking account of the financial obligations over this
period; financial flexibility - ability to take effective actions to
change the amounts and timings of cash flows so that it can
respond to unexpected needs and opportunities; solvency - the
availability of cash over the longer term to meet financial
commitments as they fall due.
★ two forms - (1) account form (2) report form
○ assets are presented in decreasing order of liquidity
■ cash as the most liquid
○ liabilities are presented based on time of maturity
■ obligations currently due are listed first

Classification: Restricted
Classification: Restricted
 Statement of Cash Flows
★ shows net increase or decrease in cash during the period
★ cash balance at the end of the period
★ cash receipts and cash payments of an entity during a period
classified into (1) operating (2) investing and (3) financing activities
★ helps project the future net cash flows of the entity

A. Operating Activities
- those which produce either revenue or are the direct cost of
producing a product or service
- “current assets & current liabilities”
A. Investing Activities
- buying and selling “noncurrent assets” which will be used to
generate revenues over a long period of time
A. Financing Activities
- include borrowing and repaying money, issuing stock (equity) and
paying dividends
- “noncurrent liabilities & equity”

Classification: Restricted
 Income Flows vs. Cash Flows
➔ income statement and balance sheet are based on accrual
accounting; income and expenses are based on the matching
principle - emphasizing the cause-and-effect association
➔ results of operations = profit; cash balance = negative
➔ results of operations = loss; cash balance = positive
◆ 2 items causing the differences
1. non cash income or expense
- example: depreciation of equipment (expense)
1. non operating income or expense
- example: gain on sale of asset (income)

➔ net income is adjusted by deferrals and accruals to convert

the accrual basis into cash flow statement

Classification: Restricted
Classification: Restricted
Classification: Restricted
 Investing Activities

★ changes to the cash position created by the

buying or selling of noncurrent assets

Classification: Restricted
 Financing Activities
★ reflect borrowing money and repaying money, issuing stock, and
paying dividends.

Classification: Restricted
Classification: Restricted
 Accounting Errors

★ unintentional mistakes
★ different from accounting fraud

1. Errors of Principle
- errors that involve violation of accounting principles, misinterpretation
of facts, unintentional unrealistic estimates or incorrect method of
calculation.
2. Clerical Errors
● Arithmetic - errors in calculations; example is 3+2x6 = 30; but
should be 15
● Input errors - incorrect figures input into accounting records
- transposition error a number is input with incorrect order of
digits; example 120000 should be 12000 or 1856 should be 1586
● Omission - forgetting to enter a transaction in accounting records.
● Misplacement - entering a transaction in wrong account.

Classification: Restricted