Financial Statements

Accounting Study Guide

U.S. GAAP Codification

IFRS International Standards

Accounting Topics

Components of Financial Statements
Assets, Liabilities, Owner's Equity, Revenues, Expenses, Gains, Losses

U.S. GAAP Codification, IFRS, Accounting Terms, Accounting Jobs

Principles of Accounting, Intermediate Accounting, Advanced Accounting

Accounting Standards ASC, Accounting by Topic, Accounting Textbooks

Financial Statements Overview

Accounting Equation

   Assets = Liabilities + Equity

   Equity = Assets - Liabilities   --->    Assets = Liabilities + Equity

   [Example]
      Company A has $800,000 liabilities and $1,200,000 equity.
      How much assets does the Company A have?

Assets = Liabilities + Equity = $800,000 - $1,200,000 = $2,000,000

Assets = Liabilities + Equity

Liabilities = Assets - Equity

Equity = Assets - Liabilities

   From any balance sheet,
       --> it can be verified that
       --> Total Assets = Total Liabilities + Total Stockholders' Equity.

Assets

     Assets are
        --> probable future economic benefits
        --> obtained or controlled by an entity
        --> as a result of past transactions or events.
                [SFAC No. 6., Para. 25]

    Essential characteristics of assets

Probable future economics benefits

Obtained or controlled by an entity

Result of past transactions or events.

    Common characteristic of all assets
         --> is service potential or future economic benefits
                [SFAC No. 6., Para. 28]

Liabilities

      Liabilities are
          --> probable future sacrifices of economic benefits
          --> arising from present obligations of an entity
          --> to transfer assets or provide services to other entities in the future
          --> as a result of past transactions or events.
                 [SFAC No. 6., Para. 35]

     Essential characteristics of liabilities

Probable future sacrifices of economic benefits

Present obligations to transfer assets or provide services in the future

Result of past transactions or events.

Equity

      Equity (or net assets) is
           --> residual interests in the assets of an entity
           --> that remains after deducting its liabilities.
                   [SFAC No. 6., Para. 49]

      Essential characteristics of equity

Equity is residual interests in the assets after deducting liabilities

Equity = Assets - Liabilities

    [Example]
       Company A has $2,000,000 assets and $800,000 liabilities.
       How much equity does the Company A have?

       Equity = Assets - Liabilities
                 = $2,000,000 - $800,000 = $1,200,000

Revenues

      Revenues are
          --> inflows of assets of an entity or
          --> settlements of its liabilities (or a combination of both)
          --> from delivering or producing goods, rendering services.
                     [SFAC No. 6., Para. 78]

      Essential characteristics of revenues

Inflows of assets or settlements of liabilities

From delivering goods or rendering services

Expenses

      Expenses are
           --> outflows or other using up of assets or
           --> incurrences of liabilities (or a combination of both) |
           --> from delivering or producing goods, rendering services.
                   [SFAC No. 6., Para. 80]

      Essential characteristics of expenses

Outflows of assets or incurrences of liabilities

from delivering goods or rendering services

Gains

      Gains are
          --> increases in equity (net assets)
          --> except those from revenues or investments by owners.
                   [SFAC No. 6., Para. 82]

      Essential characteristics of gains

Increases in equity from transactions or events

Except those that result from revenues or investments by owners.

Losses

      Losses are
           --> decreases in equity (net assets)
           --> except those from expenses or distributions to owners.
                   [SFAC No. 6., Para. 83]

   Essential characteristics of losses

Decreases in equity from transactions or events

Except those that result from expenses or distributions to owners.

Net Income and Owner's Equity

       Assets = Liabilities + Equity
       Assets = Liabilities + Equity + Revenues - Expenses
       Assets = Liabilities + Equity + Revenues - Expenses + Gains - Losses

       Ending Assets = Ending Liabilities + Ending Owner's Equity
       Ending Owner's Equity
             = Beginning Owner's Equity + Investment by Owner + Net Income

       Net Income = Revenues - Expenses + Gains - Losses

     Ending Owner's Equity
             = Beginning Owner's Equity + Investment by Owner
                + Revenues - Expenses + Gains - Losses

       Ending Assets
            = Ending Liabilities + Ending Owner's Equity
            = Ending Liabilities + Beginning Owner's Equity
               + Investment by Owner + Net Income

            = Ending Liabilities + Beginning Owner's Equity
               + Investment by Owner + Revenues - Expenses + Gains - Losses

       If Investment by Owner = 0, Gains = 0, Losses = 0, then

       Ending Assets = Ending Liabilities + Beginning Owner's Equity
                               + Revenues - Expenses

       Ending Assets = Ending Liabilities + Ending Owner's Equity

       Assets = Liabilities + Owner's Equity