Class Notes (1,100,000)
CA (620,000)
UBC (10,000)
COMM (700)
Lecture 5

COMM 293 Lecture Notes - Lecture 5: Financial Statement Analysis, Cash Flow Statement, Financial Statement


Department
Commerce
Course Code
COMM 293
Professor
Tran Chung
Lecture
5

This preview shows pages 1-3. to view the full 10 pages of the document.
2-1
CHAPTER 2
INVESTING AND FINANCING DECISIONS AND
THE STATEMENT OF FINANCIAL POSITION
CHAPTER OUTLINE
I UNDERSTANDING THE BUSINESS
II OVERVIEW OF ACCOUNTING CONCEPTS
A. Concepts Emphasized in Chapter 2
i. Objective of Financial Reporting
ii. Qualitative Characteristics of Accounting Information
iii. Accounting Assumptions
iv. Basic Accounting Principle
B. Elements of the Classified Statement of Financial Position
III WHAT TYPE OF BUSINESS ACTIVITIES CAUSE CHANGES IN
FINANCIAL STATEMENT AMOUNTS?
A. Nature of Business Transactions
B. Accounts
IV HOW DO TRANSACTIONS AFFECT ACCOUNTS?
A. Principles of Transaction Analysis
i. Dual Effects
ii. Balancing the Accounting Equation
B. Analyzing Sun-Rype's Transactions
V HOW DO COMPANIES KEEP TRACK OF ACCOUNT BALANCES?
A. The Direction of Transaction Effects
B. Analytical Tools
i. The Journal Entry
ii. The T-Account
C. Transaction Analysis Illustrated
VI HOW IS THE STATEMENT OF FINANCIAL POSITION PREPARED?
A. Classified Statement of Financial Position
B. Some Misconceptions
VII ACCOUNTING STANDARDS FOR PRIVATE ENTERPRISE

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

2-2
ADDITIONAL RESOURCES
ADDITIONAL TEACHING NOTES
CHART OF END-OF-CHAPTER MATERIALS
GUIDE TO OTHER CHAPTER FEATURES
SUPPLEMENTAL ENRICHMENT ACTIVITIES
CHAPTER LEARNING OBJECTIVES
1. Understand the objective of financial reporting, the qualitative characteristics of accounting
information and the related key accounting assumptions and principles.
2. Define the elements of a classified statement of financial position.
3. Identify what constitutes a business transaction and recognize common account titles used
in business.
4. Apply transaction analysis to simple business transactions in terms of the accounting model:
Assets = Liabilities + Equity.
5. Determine the impact of business transactions on the statement of financial position using
two basic tools: journal entries and T-accounts.
6. Prepare a classified statement of financial position and analyze it using the current ratio.
7. Identify investing and financing transactions and how they are reported on the statement of
cash flows.
CHAPTER SUMMARY
This chapter reviews the parts of the conceptual framework relevant to the statement of financial
position (the objective of external financial reporting, definitions of the elements of the statement of
financial position, and the cost principle). This chapter discusses the accounting model and
illustrates its application in the accounting system for a business. For accounting purposes,
transactions are defined as (a) exchanges of assets and liabilities between the business and other
individuals and organizations, and (b) certain events that do not occur between the business and
other parties but exert a direct effect on the entity (such as, recording adjustments to reflect the use
of equipment in operations).
Application of the accounting model ---- Assets = Liabilities + Equity ---- is illustrated for Sun-Rype
(www.sunrype.com). The application involves (1) transaction analysis, (2) journal entries, and (3)
the accounts (T-account format). Each transaction causes at least two different accounts to be
affected in terms of the accounting model. The model often is referred to as a double-entry system
because each transaction has a dual effect. The process used in transaction analysis involves (a)
identifying the accounts affected and classifying each as an asset, liability, or shareholders' equity
account and (b) determining that the accounting equation remains in balance.

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

2-3
The transaction analysis model (built on the accounting model) and the mechanics of the debit-
credit concepts in T-account format can be summarized as follows:
Transaction Analysis Model
Assets (A) = Liabilities (L) + Equity (E)
Increase
Debit
Decrease
Credit
Decrease
Debit Increase
Credit
Decrease
Debit Increase
Credit
T-Account Format
Assets
Liabilities
Equity
Increase
Debit
Beg. Bal.
Decrease
Credit
Decrease
Debit Increase
Credit
Beg. Bal.
Decrease
Debit Increase
Credit
Beg. Bal.
End. Bal.
End. Bal.
End. Bal.
CHAPTER LECTURE NOTES
I UNDERSTANDING THE BUSINESS
1. An understanding of a company's financial statements requires knowledge of business
activities and their effects on account balances.
2. Financial statement analysis will allow the decision maker to arrive at decisions about a
company. This evaluation can be used to compare one company to other companies.
3. Financial statements for Canadian companies contain estimates of financial value that
are developed in accordance with generally accepted accounting principles (GAAP
which can be IFRS or ASPE).
4. Financial statements are intended to communicate the economic facts, measured in
monetary units in a standardized manner incorporating rules (standards) consistently
without bias (faithful representation).
5. Analysis of investing (asset acquisition activities) activities and financing (activities
around borrowing and equity transactions) activities of a business should be explored.
6. Financial statements communicate results or consequences of strategy by answering the
following questions:
i what type of business activities cause changes in the statement of
financial position amounts from one period to the next?
ii how do specific activities affect each of the statement of financial
position amounts?
iii how do companies keep track of these amounts
7. Once we have answered these questions, we will be able to use the information to
i. Analyze and predict the effects of business
You're Reading a Preview

Unlock to view full version