[From textbook] 3 basic types of company operations

1. Services – Provide customers services for profit.

2. Manufacturers – Create products and sell them for profit.
3. Merchandisers – Buy products and re-sell them for profit.
The Fundamental Accounting Equation
1. Assets = Liabilities (Claims by creditors) + Equity (Residual value to owners)
a. Always balances after every transaction!
2. [From textbook] Reflects 2 basic aspects of a company: what it owns and what it owes.
a. Liabilities and equity are the source of funds to acquire assets.
b. ***Liabilities are usually shown before equity because creditors’ claim must be paid before
the claims of owners.
3. Applies to all transactions & events, to all companies & forms of organisation, to all points in time.
Assets Liabilities (Residual) Equity; Net assets/worth
Resources controlled by the A present obligation Owner’s claim on the residual interest in
entity in the present the assets after deducting all liabilities
Due to past event
That will give rise to future That is expected to lead to a
economic benefits future outflow/transfer of
resources upon settlement
E.g. Cash, supplies, equipment,
and land
[From textbook] Separated into [From textbook] Usually claims by a creditor against an entity’s assets,
owner and non-owner claims. which reflect its obligations to provide assets, products, or services to
others.
Receivable – Promises a future Payable – A liability that
inflow of resources. promises a future outflow of
On credit/account - A cash resources.
payment occurring on a future
date.
FRS 1 Presentation of Financial Statements (Introduction)
1. Summarize the financial activities of a business.
a. [From textbook] A statement’s heading identifies the company, the statement title, and the
date/time.
2. A complete set of financial statements comprise of The Four major statements.
a. Directors’ statement  Independent auditor’s report  Statements of financial position
(Balance sheet)  Group Income Statement  Group Comprehensive Income Statement 
Statements of changes in equity  Group Cashflow Statement  Notes to the financial
statements
FRS 1 Presentation of Financial Statements (Statement of Financial Position (Balance Sheet) at the end of the
period)
1. Shows assets, liabilities, and equity at a point in time.
a. A snapshot of a company’s economic resources and obligations at a point in time.
2. [From textbook] Assets at the top, followed by liabilities, and finally equity balance.
a. Vertical arrangement and report/narrative format.
3. Assets on the left and liability & equity on the right.
a. Horizontal arrangement and account format.
FRS 1 Presentation of Financial Statements (Statement of Profit/Loss and Other Comprehensive Income
(Income Statement) for the period)
1. Shows the firm’s economic performance over a period.
a. A video camera capturing the economic activities of the company over a period.
2. Income Statement followed by Capital Maintenance Adjustment.
3. [From textbook] Describes a company’s revenues and expenses along with the resulting net
profit/loss over a period due to earnings activities.
4. Revenues are reported first, followed by expenses and net profit/loss at the bottom of the statement.
5. ***Shareholders’ contributed capital and dividends are not part of the profit!
FRS 1 Presentation of Financial Statements (Statement of Changes in Equity/Retained Earnings) for the
period)
1. Shows beginning share capital, events that increase it (issuance of shares and net profit), and events
that decrease it (dividends and net loss).
2. Ending equity is computed and carried over & reported on the statement of financial position.
3. An existing business reports a beginning balance = that as at the end of the prior reporting period.
4. Shows how equity changes over a reporting period
a. Assets = Liabilities + Share Capital + Retained Earnings
Liabilities + Share Capital + Revenues – Expenses – Dividends
b. Beginning Equity + Net increase in share capital + Income – Expenses + Comprehensive
Income – Distributions to shareholders = Ending Equity
Contributed capital Retained earnings
Definition The amount that shareholders Cumulative net profit/loss that is not distributed
invest in the company to its shareholders
a. 1. Dividends (distribution of assets to
shareholders) reduces retained earnings.
2. Expenses (cost of assets and services used to
earn revenues) reduces retained earnings.
3. Net income increases retained earnings.
Scenarios 1. A net profit occurs when revenues exceed
expenses  Increases equity
2. A net loss occurs when expenses exceed
revenues  Decreases equity
Extra Included under the title Share
Capital
FRS 1 Presentation of Financial Statements (Statement of Cash Flows for the period)
1. Cash from the statement of financial position is used to reconcile.
a. The first section reports cash flows from operating activities.
b. The second section reports cash flows from investing activities.
c. The third section shows cash flows from financing activities.
2. Shows a company’s cash inflow and outflows over a period.
The 3 Cash Flows from Operating Cash Flows from Investing Cash Flows from
elements Activities Activities Financing Activities
Definition Directly related to the Related to acquisition or Related to financing of
company’s main business sale of company’s the company.
operations that generate productive assets.
income.
Example Paying suppliers, receiving Buying equipment, land, and Receiving money from
payment from customers, buildings. investors and creditors,
paying salaries. paying dividends.
Changes in cash = CFO + CFI + CFF
3. Needed due to the usage of accrual-basis accounting!
a. Revenues reported do not always equal cash collected
i. E.g. selling to customer on credit - company records revenue on income statement
but has not received cash payment.
b. Expenses reported do not always equal cash paid
i. E.g. buying from supplier on credit - company records expenses on income
statement but has not made payment to the supplier.
1. Cash is needed to run the day-to-day operations of a business!
FRS 1 Presentation of Financial Statements (Notes)
1. [From textbook] Provide supplemental information about the financial conditions and economic
performance of a company.
2. Three basic types:
a. Description of accounting rules and methods applied
b. Presentation of additional details about an item on the financial statement.
c. Provide additional information about an item not on the financial statement.
 [From textbook] FRS 1 Presentation of Financial Statements (Available choices/variations)
1. An entity may use titles for the statements other than those above.
2. The statement of profit/loss and other comprehensive income can be shown as a single statement,
with profit or loss and other comprehensive income presented in two sections.
3. An entity may also present the profit/loss section in a separate statement of profit/loss.
a. The separate statement of profit/loss shall immediately precede the statement presenting
comprehensive income, which shall begin with profit/loss.
b. Some entities may call the first statement “income statement” or “statement of profit/loss.”