Balance Sheet Income, whereas Foreign currency

●​ The primary objective of financial statement remeasurement gains and losses are
reporting is to meet the needs of investors reported in Net Income. ALL OF THESE
and creditors ARE PART OF COMPREHENSIVE INCOME.
●​ The use of historical cost in a period of
rising prices will cause the value of the Asset Statement of Owner’s Equity and Limitations of
to be understated, since the current fair value Financial Statements
of the assets will be more than what was paid ●​ The Statement of Changes in
for them. The value of Profits is overstated, Stockholder’s Equity reports the changes in
since selling prices of inventory will go up each stockholders’ equity account in total
while inventory cost remains the same. Thus, stockholders’ equity during the year and
COGS is unadjusted, and so Profits (revenue reconciles the beginning balance in each
- COGS) are overstated. account with the ending balance.
●​ Long-term debt that matures within one year ●​ The idea of going concern is the assumption
and will be retired through the use of current that the company will continue in operations
assets is a current liability. for the foreseeable future. Nothing in this
●​ The gain on the sale of an asset is reported assumption implies that the company will be
in the income statement in the section of profitable or that it will continue in existence
continuing operations in the year in which it is forever, only that it will continue to operate for
sold. the foreseeable future.

Income Statement Statement of Cash Flows

●​ The financial statement that provides a ●​ The amortization of a bond premium is part
summary of the firm’s operations for a period of the calculation of cash flows from operating
of time is the Income Statement. While the activities.
point in time is the Balance Sheet. ●​ Cash flows from and used for operating
●​ All gains and losses incurred by a activities are the most important factor to
discontinued segment are reported in the consider when using the Statement of Cash
period in which the gain or loss occurred—net Flows to evaluate a company’s continuing
of associated taxes. solvency.
●​ According to FASB conceptual framework, ●​ Only the Direct Method provides specific
revenue may result from a decrease in a information about the cash inflows from
liability rom delivering to a customer an item different operating activities (such as cash
sold. received from customers and cash paid to
●​ The matching principle requires that a suppliers.
company recognize the expenses that
generate revenue in the same period that the Indirect Method
revenue is recognized. ●​ The Indirect Method of calculating and
reporting a company’s net cash flow from
Statement of Comprehensive Income operating activities on its statement of cash
●​ Accumulated Other Comprehensive flows is the method most commonly used.
Income is a permanent account/line in the ●​ When using indirect method to prepare the
Equity section of the balance sheet that statement of cash flows, the impairment of
includes the items that are not reflected on goodwill should be presented as an addition
the Income Statement. to net income.
●​ Comprehensive income is best defined as
the change in net assets for the period Integrated Reporting
excluding owner transactions. ●​ The primary purpose of an integrated report
●​ Foreign currency translation gains and is to explain how an organization creates
losses are reported in Other Comprehensive
 value over time to its financial capital
providers. Inventory Counts, Errors, and Valuations
●​ Social and Relationship Capital is when a ●​ Under IFRS, previous write-downs of
company reports on its activities that benefit inventory may be recovered up to the original
and improve the lives of the people in the cost of the inventory. Gains cannot be
communities where it is located. recognized, but previous losses can be
●​ Intellectual Capital is the type of capital reversed.
used to create the system to accumulate and ●​ Under US GAAP, inventory recoveries in
analyze driving data. value may be recorded only if they occur
●​ The earliest framework for reporting on social within the same fiscal year as the write-down
responsibility and sustainable development occurred.
activities was introduced by the Global ●​ According to ASC 330-10-35-1A through 35-,
Reporting Initiative (GRI). when the inventory cost flow assumption
●​ Value Creation is defined as the process that being used is anything other than LIFO or
results in increases, decreases, or the Retail Method, the inventory should be
transformations of the capitals caused by the measured at the lower of cost or net
organization’s business activities and outputs. realizable value.
●​ Corporate Social Responsibility focuses on ●​ Net Realizable Value is defined as the
organizations’ impacts on society. estimated selling price in the ordinary course
●​ Integrated Thinking is the incorporation of of business, minus reasonably predictable
the non-financial information into the costs of selling, including cosrs of completion,
management’s reporting, analysis, and disposal, and transportation.
decision-making.
●​ Integrated Reporting a process founded on Recording Fixed Assets
integrated thinking that results in a periodic ●​ The carrying value of property, plant and
integrated report by an organization about equipment, also called its net book value, is
value creation over time and related determined as the historical cost minus
communications regarding aspects of value accumulated depreciation.
creation. ●​ Any proceeds that are received from the sale
of something in getting land ready for its use
Accounts Receivable should be treated as a reduction of the cost
●​ Writing off an account when the Current of the land, not as income.
Expected Credit Loss model is used has no
effect on either the income statement or on Inventory Tracking Methods
current assets. ●​ One of the disadvantage of the LIFO
●​ On the Statement of Financial Position, Inventory Valuation Method is that it rarely
accounts receivable is valued at estimated approximates the physical flow of inventory.
net realizable value (the amount that is ●​ In a period of rising prices, LIFO assumption
expected to be collected in the future). usually provides the best matching of
●​ The Aging Schedule is used to identify how expenses against revenues because the cost
old receivables are and to then calculate what allocated to sold units is the most recently
amount is expected to be collected. incurred cost for each item of inventory.
●​ In factoring, the customer makes payment
directly to the factor, whereas in assignment, Business Combinations and Consolidations
the customer makes payment to the original ●​ According to ASC 810-10, the financial
holder of the receivable. statements of VIEs that have a primary
●​ Whether receivables are sold with or without beneficiary must be consolidated with the
recourse, the sold receivables need to be financial statements of the primary
written off the books. This is done with a beneficiary regardless of the amount of
credit to accounts receivable. ownership held by the primary beneficiary.
 ●​ Non-controlling interest is presented in the ●​ A stock dividend will not impact current
equity section of the consolidated balance liabilities.
sheet, representing the portion of a subsidiary ●​ A stock dividend will not affect the value of
not owned by the parent. the company.
●​ Neither the distribution of cash dividend
Leases nor the declaration of a stock dividend will
●​ For leases having a term of 12 months or decrease the total shareholder’s equity.
less, the lessee may make an accounting ●​ The stock split proposal will decrease
policy election, by class of underlying asset earnings per share more than the proposal
not to recognize lease assets and lease for a stock dividend will.
liabilities. ●​ Dividend becomes a liability of the company
on the date the dividend is declared.
Owner’s Equity and Retained Earnings ●​ The Statement of Financial Position at the
●​ Increases or decreases in the market value of end of the year will reflect the amount on the
the shares after they have been issued are date the dividend was declared.
not recorded on the books of the issuing ●​ A stock dividend declaration will decrease
company. Therefore, no accounting entries retained earnings and increase additional
should be recorded. paid-in capital.
●​ When the issuer initially sells common stock,
the Common Stock account is credited for the Treasury Stock and Shares Classification
par value of the shares issued. ●​ The maximum number of shares that a
corporation may issue is the definition of the
Intangible Assets number of its authorized shares.
●​ Costs that are capitalized with regard to an
internally-created patent include; Revenue Recognition
○​ Legal fees for obtaining the patent ●​ A conditional contract asset is a right to
○​ Incidental costs of obtaining patent receive consideration because the company
○​ Costs of successful patent has partially satisfied the performance
infringement suits. obligations in the contract, but it must satisfy
another performance obligation before it can
Warranties invoice the customer.
●​ When there is a range of an estimated
probable, contingent loss, and no item Right of Return and Consigned Goods
within that range is a better estimate than any ●​ When the right of return exists, the contract
other amount, the minimum amount in the consideration is variable. The contract’s
range should be accrued. transaction price should exclude
consideration related to products expected to
Accounting for Income Tax be returned or refunded.
●​ Deferred tax liabilities arise when financial
net income is higher than taxable net income
for a period and that difference is expected to
reverse in the future.
●​ The amount of deferred income tax is based
on the tax rates expected to be in effect
during the periods in which the temporary
differences reverse.
Common Stock
●​ A stock dividend distribution does not
increase or decrease equity and will not
generate profit or loss.