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Statement of Financial Position and Statement of Cash Flows: Learning Objectives
Statement of Financial Position and Statement of Cash Flows: Learning Objectives
Statement of Financial Position and Statement of Cash Flows: Learning Objectives
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses and limitations of a 5. Identify the content of the statement of cash
statement of financial position. flows.
2. Identify the major classifications of the 6. Prepare a basic statement of cash flows.
statement of financial position. 7. Understand the usefulness of the statement
3. Prepare a classified statement of of cash flows.
financial position using the report 8. Determine additional information requiring
and account formats. note disclosure.
4. Indicate the purpose of the statement of cash 9. Describe the major disclosure techniques for
flows. financial statements.
5-1
CLASSIFICATION IN THE STATEMENT
5-2 LO 3
Statement of
Financial
Position Format
Report Form
lists the sections
one above the other.
ILLUSTRATION 5-17
Classified Report-Form
Statement of Financial
Position
5-3 LO 3
5 Statement of Financial Position
and Statement of Cash Flows
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses and limitations of a 6. Prepare a basic statement of cash flows.
statement of financial position. 7. Understand the usefulness of the statement
2. Identify the major classifications of the of cash flows.
statement of financial position. 8. Determine additional information requiring
3. Prepare a classified statement of financial note disclosure.
position using the report and account formats. 9. Describe the major disclosure techniques for
4. Indicate the purpose of the statement financial statements.
of cash flows.
5. Identify the content of the statement of cash
flows.
5-4
STATEMENT OF CASH FLOWS
5-5 LO 4
STATEMENT OF CASH FLOWS
5-6 LO 4
5 Statement of Financial Position
and Statement of Cash Flows
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses and limitations of a 6. Prepare a basic statement of cash flows.
statement of financial position. 7. Understand the usefulness of the statement
2. Identify the major classifications of the of cash flows.
statement of financial position. 8. Determine additional information requiring
3. Prepare a classified statement of financial note disclosure.
position using the report and account formats. 9. Describe the major disclosure techniques for
4. Indicate the purpose of the statement of cash financial statements.
flows.
5-8 LO 5
CONTENT AND FORMAT ILLUSTRATION 5-19
Cash Inflows and Outflows
5-9 LO 5
5 Statement of Financial Position
and Statement of Cash Flows
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
5-11 LO 6
Preparation
Preparation of
of Statement
Statement of
of Cash
Cash Flows
Flows
5-12 LO 6
ILLUSTRATION 5-20
ILLUSTRATION 5-21
5-13
Preparation of Statement of Cash Flows
5-14 LO 6
Preparing the Statement of Cash Flows
5-15 LO 6
ILLUSTRATION 5-20
5-16 LO 6
ILLUSTRATION 5-20
5-17 LO 6
Preparing the Statement of Cash Flows
5-18 LO 6
ILLUSTRATION 5-23
Investing
and
Financing
Activities
Purchased land
for $15,000
(Investing)
5-19 LO 6
ILLUSTRATION 5-23
Investing
and
Financing
Activities
Issued ordinary
shares for
$50,000
(Financing)
5-20 LO 6
ILLUSTRATION 5-23
Investing
and
Financing
Activities
Paid $14,000 in
dividends
(Financing)
5-21 LO 6
Preparation of Statement of Cash Flows
Question
In preparing a statement of cash flows, which of the following
transactions would be considered an investing activity?
a. Sale of equipment at book value
b. Sale of merchandise on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable.
5-31 LO 6
Preparation of Statement of Cash Flows
Examples include:
Issuance of ordinary shares to purchase assets.
Conversion of bonds into ordinary shares.
Issuance of debt to purchase assets.
Exchanges on long-lived assets.
5-32 LO 6
ILLUSTRATION 5-24
Comprehensive
Statement
of Cash Flows
5-33
5 Statement of Financial Position
and Statement of Cash Flows
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses and limitations of a 6. Prepare a basic statement of cash flows.
statement of financial position.
7. Understand the usefulness of the
2. Identify the major classifications of the statement of cash flows.
statement of financial position.
8. Determine additional information requiring
3. Prepare a classified statement of financial note disclosure.
position using the report and account formats.
9. Describe the major disclosure techniques for
4. Indicate the purpose of the statement of cash financial statements.
flows.
5. Identify the content of the statement of cash
flows.
5-34
Usefulness of Statement of Cash Flows
5-35 LO 7
Usefulness of Statement of Cash Flows
Financial Liquidity
ILLUSTRATION 5-26
5-36 LO 7
Usefulness of Statement of Cash Flows
Financial Flexibility
ILLUSTRATION 5-27
5-37 LO 7
Usefulness of Statement of Cash Flows
5-38 LO 7
Usefulness of Statement of Cash Flows
Question
The current cash debt coverage ratio is often used to
assess
a. financial flexibility.
b. liquidity.
c. profitability.
d. solvency.
5-39 LO 7
5 Statement of Financial Position
and Statement of Cash Flows
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses and limitations of a 6. Prepare a basic statement of cash flows.
statement of financial position. 7. Understand the usefulness of the statement
2. Identify the major classifications of the of cash flows.
statement of financial position. 8. Determine additional information requiring
3. Prepare a classified statement of financial note disclosure.
position using the report and account formats. 9. Describe the major disclosure techniques for
4. Indicate the purpose of the statement of cash financial statements.
flows.
5. Identify the content of the statement of cash
flows.
5-40
ADDITIONAL INFORMATION
5-42 LO 8
Notes to the Financial Statements
ILLUSTRATION 5-30
Accounting Policies—
Inventory
ILLUSTRATION 5-31
Accounting Policies—
Intangible Asset
5-43 LO 8
Notes to the Financial Statements
5-44 LO 8
Additional Notes
ILLUSTRATION 5-36
Reconciliation Schedule for
Property, Plant, and Equipment
5-45 LO 8
Notes to the Financial Statements
5-46 LO 8
Additional Notes
ILLUSTRATION 5-34
Maturity Analysis
for Receivables
5-47
Additional Notes
5-48 LO 8
5 Statement of Financial Position
and Statement of Cash Flows
LEARNING
LEARNING OBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses and limitations of a 6. Prepare a basic statement of cash flows.
statement of financial position. 7. Understand the usefulness of the statement
2. Identify the major classifications of the of cash flows.
statement of financial position. 8. Determine additional information requiring
3. Prepare a classified statement of financial note disclosure.
position using the report and account formats.
9. Describe the major disclosure
4. Indicate the purpose of the statement of cash techniques for financial statements.
flows.
5. Identify the content of the statement of cash
flows.
5-49
Techniques of Disclosure
5-50 LO 9
Techniques of Disclosure
ILLUSTRATION 5-38
Cross-Referencing and
Contra Items
5-51 LO 9
ADDITIONAL INFORMATION
Other Guidelines
Fair
Offsetting Consistency
Presentation
Other Guidelines
Fair
Offsetting Consistency
Presentation
Other Guidelines
Fair
Offsetting Consistency
Presentation
5-54 LO 9
GLOBAL ACCOUNTING INSIGHTS
As in IFRS, the statement of financial position and the statement of cash flows
are required statements for U.S. GAAP. In addition, the content and
presentation of a U.S. GAAP statement of financial position and cash flow
statement are similar to those used for IFRS.
5-55
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Following are the key similarities and differences between U.S. GAAP and
IFRS related to the statement of financial position.
Similarities
• Both U.S. GAAP and IFRS allow the use of the title “balance sheet” or
“statement of financial position.” IFRS recommends but does not require the
use of the title “statement of financial position” rather than balance sheet.
• Both U.S. GAAP and IFRS require disclosures about (1) accounting policies
followed, (2) judgments that management has made in the process of
applying the entity’s accounting policies, and (3) the key assumptions and
estimation uncertainty that could result in a material adjustment.
Comparative prior period information must be presented and financial
statements must be prepared annually.
5-56
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Similarities
• U.S. GAAP and IFRS require presentation of non-controlling interests in the
equity section of the statement of financial position.
Differences
• U.S. GAAP follows the same guidelines as presented in the chapter for
distinguishing between current and noncurrent assets and liabilities.
However, under U.S. GAAP, public companies must follow U.S. SEC
regulations, which require specific line items. In addition, specific U.S.
GAAP mandates certain forms of reporting for this information. IFRS
requires a classified statement of financial position except in very limited
situations.
5-57
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Differences
• Under U.S. GAAP cash is listed first, but under IFRS it is many times listed
last. That is, under IFRS, current assets are usually listed in the reverse
order of liquidity than under U.S. GAAP.
• U.S. GAAP has many differences in terminology that you will notice in this
textbook. One example is the use of common stock under U.S. GAAP,
which is referred to as share capital—ordinary under IFRS.
• Use of the term “reserve” is discouraged in U.S. GAAP, but there is no such
prohibition in IFRS.
5-58
GLOBAL ACCOUNTING INSIGHTS
5-59
GLOBAL ACCOUNTING INSIGHTS
On the Horizon
The IASB and the FASB are working on a project to converge their standards
related to financial statement presentation. A key feature of the proposed
framework is that each of the statements will be organized, in the same format,
to separate an entity’s financing activities from its operating and investing
activities and, further, to separate financing activities into transactions with
owners and creditors. Thus, the same classifications used in the statement of
financial position would also be used in the statement of comprehensive
income and the statement of cash flows.
5-60
APPENDIX 5A RATIO ANALYSIS—A REFERENCE
5-61 LO 10 Identify the major types of financial ratios and what they measure.
APPENDIX 5A RATIO ANALYSIS—A REFERENCE
5-62 LO 10
APPENDIX 5A RATIO ANALYSIS—A REFERENCE
5-63 LO 10
APPENDIX 5A RATIO ANALYSIS—A REFERENCE
5-64 LO 10
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5-65