Standardizing Financial Statements

Standardizing Financial Statements

Income Statements

• Income statement displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write offs (e.g., depreciation and amortization of various assets) and taxes.
• The income statement can be prepared in one of two methods: The Single Step income statement and Multi-Step income statement.
• The income statement includes revenue, expenses, COGS, SG&A, depreciation, other revenues and expenses, finance costs, income tax expense, and net income.

Balance Sheets

• Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
• The main categories of assets are usually listed first (in order of liquidity) and are followed by the liabilities.
• The difference between the assets and the liabilities is known as "equity".
• Balance sheets can either be in the report form or the account form.
• A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.
• Guidelines for balance sheets of public business entities are given by the International Accounting Standards Board and numerous country-specific organizations/companies.

Key terms

• asset Something or someone of any value; any portion of one's property or effects so considered.
• balance sheet A summary of a person's or organization's assets, liabilities and equity as of a specific date.
• equity Ownership, especially in terms of net monetary value, of a business.
• intangible asset Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched, or physically measured, and are created through time and effort, and are identifiable as a separate asset.

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Exercise

1. The single-step method requires totaling a company's revenue, then subtracting all of its costs.
2. The multi-step method requires calculating the gross profit then subtracting operating expenses.
3. All of these answers.
4. The non-operating section of the multi-step method covers all non-primary revenues and losses.

1. A balance sheet covers a period of time.
2. Balance sheet account names and usage are up to the company producing the report.
   
3. The balance sheet's sections are assets, liabilities, and ownership equity.
   
4. All of these answers.

1. assets minus liabilities
   
2. liabilities minus assets
   
3. 50% of assets
4. 50% of liabilities
   

1. liabilities
   
2. ownership equity
   
3. assets
   
4. cash flow

Answers

1. c
2. c
3. a
4. c