MGT120H5 Chapter 3: Preparing Financial Statements (Accrual Accounting) and Evaluate Company's Debt-Paying Ability
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MGT120H5 Full Course Notes
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Document Summary
Why is the income statement prepared first and the balance sheet last: the income statement is prepared first because it reports net income (revenues minus expenses), which is needed to prepare the statement of retained earnings. This link is illustrated by arrow 2 b/w exhibits 3-6 and 3-7. Companies can format their balance sheets and income statements in various ways. Classified balance sheet: separates current assets from non-current assets and current liabilities. Ifrs and aspe require the use of classified balance sheets. An unclassified balance does not separate current and non-current assets or liabilities. Regardless of which of these two formats is used, current assets are always listed in order of decreasing liquidity: liquidity: a measure of how quickly they can be converted to cash, the most liquid asset. Report format: a balance prepared in this format lists assets at the top, then liabilities, and then shareholder"s equity.
