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Financial Statements: Reading & Analysis

59 cards · 🇺🇸 English

Balance sheets, income statements and cash flow statements.

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Financial statements

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  1. 1Financial statements
    Formal records of the financial activities and position of a business, person, or other entity
  2. 2What does a balance sheet report?
    A company's assets, liabilities, and owners equity at a given point in time
  3. 3What does an income statement report?
    A company's income, expenses, and profits over a stated period
  4. 4What does a statement of changes in equity report?
    Changes in equity of the company over a stated period
  5. 5What does a cash flow statement report?
    A company's cash flow activities, particularly its operating, investing and financing activities over a stated period
  6. 6Key difference between a balance sheet and an income statement in terms of time
    A balance sheet represents a snapshot in time, whereas the income statement represents activities over an accounting period
  7. 7Objective of financial statements according to international standards
    To provide information about the financial position, performance and changes in financial position useful to a wide range of users in making economic decisions
  8. 8What four qualities should financial statements possess?
    Understandable, relevant, reliable and comparable
  9. 9What level of knowledge should readers of financial statements have?
    A reasonable knowledge of business and economic activities and accounting, and be willing to study the information diligently
  10. 10Why do owners and managers require financial statements?
    To make important business decisions that affect continued operations and to provide detailed understanding through financial analysis
  11. 11Why do employees need financial statements?
    For making collective bargaining agreements with management or for discussing compensation, promotion and rankings
  12. 12How do prospective investors use financial statements?
    To assess the viability of investing in a business, often through professional financial analyses
  13. 13How do financial institutions use financial statements?
    To decide whether to grant working capital or extend debt securities for expansion and significant expenditures
  14. 14Consolidated financial statements
    Financial statements where the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as a single economic entity
  15. 15GAAP
    Generally Accepted Accounting Principles
  16. 16Purpose of GAAP
    To ensure uniformity and comparability between financial statements prepared by different companies through guidelines and rules
  17. 17IASB
    International Accounting Standards Board
  18. 18IFRS
    International Financial Reporting Standards
  19. 19Which countries have adopted IFRS?
    Australia, Canada and the European Union (for publicly quoted companies)
  20. 20MD&A
    Management Discussion and Analysis - an integrated part of annual financial statements
  21. 21Purpose of MD&A
    To provide a narrative explanation, through management's eyes, of how an entity has performed, its financial condition, and future prospects
  22. 22What does MD&A typically describe regarding liquidity?
    The corporation's liquidity position and capital resources
  23. 23What types of events does MD&A discuss?
    Events of unusual or infrequent nature such as mergers and acquisitions or share buybacks
  24. 24Assets in financial accounting
    Resources owned by a company that have economic value
  25. 25Liabilities in financial accounting
    Obligations or debts that a company owes to others
  26. 26Equity in financial accounting
    The residual interest in the assets after deducting liabilities, representing ownership
  27. 27Another name for an income statement
    Profit and loss statement
  28. 28What three types of activities does a cash flow statement track?
    Operating, investing, and financing activities
  29. 29Accounting period
    A specific time span over which financial activities are measured and reported
  30. 30Financial analysis
    Detailed examination of financial statements to provide management with deeper understanding of figures

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