About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
2 1 3 Financial Statement Presentation Explained

1 3 Financial Statement Presentation Explained

Key Concepts

Balance Sheet

The Balance Sheet provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity. The fundamental equation for the Balance Sheet is: Assets = Liabilities + Equity.

Example: A company has $500,000 in assets, $200,000 in liabilities, and $300,000 in equity. This satisfies the equation: $500,000 (Assets) = $200,000 (Liabilities) + $300,000 (Equity).

Income Statement

The Income Statement, also known as the Profit and Loss Statement, reports a company's financial performance over a specific period. It shows the revenues, expenses, and net income or loss. The equation for the Income Statement is: Revenues - Expenses = Net Income.

Example: A company has $1,000,000 in revenues and $800,000 in expenses. The net income is $200,000, calculated as: $1,000,000 (Revenues) - $800,000 (Expenses) = $200,000 (Net Income).

Statement of Cash Flows

The Statement of Cash Flows provides information about a company's cash inflows and outflows over a specific period. It is divided into three sections: Operating Activities, Investing Activities, and Financing Activities. The equation for the Statement of Cash Flows is: Net Cash Flow from Operating Activities + Net Cash Flow from Investing Activities + Net Cash Flow from Financing Activities = Net Increase/Decrease in Cash.

Example: A company has $150,000 in net cash flow from operating activities, -$50,000 from investing activities, and $30,000 from financing activities. The net increase in cash is $130,000, calculated as: $150,000 (Operating) - $50,000 (Investing) + $30,000 (Financing) = $130,000 (Net Increase in Cash).

Statement of Changes in Equity

The Statement of Changes in Equity shows the changes in a company's equity over a specific period. It details the sources of changes in equity, such as net income, dividends, and issuance or repurchase of stock. The equation for the Statement of Changes in Equity is: Beginning Equity + Net Income - Dividends + Issuance/Repurchase of Stock = Ending Equity.

Example: A company starts with $300,000 in equity, earns $200,000 in net income, pays $50,000 in dividends, and issues $100,000 in new stock. The ending equity is $550,000, calculated as: $300,000 (Beginning Equity) + $200,000 (Net Income) - $50,000 (Dividends) + $100,000 (Issuance of Stock) = $550,000 (Ending Equity).

Notes to Financial Statements

Notes to Financial Statements provide additional information and explanations about the items reported in the financial statements. They include details on accounting policies, contingencies, commitments, and other relevant information. Notes are essential for understanding the financial statements fully.

Example: A note might explain the method used for inventory valuation, such as FIFO or LIFO, and its impact on the reported financial results.

Examples and Analogies

Consider the Balance Sheet as a "financial photograph" of a company at a specific moment. The Income Statement is like a "financial movie" showing the company's performance over a period.

The Statement of Cash Flows is akin to a "financial GPS" tracking the company's cash movements. The Statement of Changes in Equity is like a "financial diary" recording changes in the company's equity.

Notes to Financial Statements are the "footnotes" that provide deeper insights and context to the main financial statements.

© 2024 Ahmed Baheeg Khorshid. All rights reserved.