Financial Accounting and Reporting

comprehensive income items
5. Treasury shares → generally, the amount of ordinary shares repurchased
6. Non-controlling interest (minority interest) → a portion of the equity of subsidiaries not owned
by the reporting company.
Non-current liabilities are obligations that a company does not reasonably expect to liquidate
within the longer of one year or the normal operating cycle. Companies classify non-current
liabilities that mature within the current operating cycle or one year as current liabilities if
payment of the obligation requires the use of current assets. Generally, non-current liabilities are
of three types:
1. Obligations arising from specific financing situations
2. Obligations arising from the ordinary operations of the company
3. Obligations that depend on the occurrence or non-occurrence of one or more future events to
confirm the amount payable, or the payee, or the date payable.
Current liabilities are the obligations that a company generally expects to settle in its normal
operating cycle or one year, whichever is longer. This concept includes:
1. Payables resulting from the acquisition of goods and services
2. Collections received in advance for the delivery of goods or performance of services
3. Other liabilities whose liquidation will take place within the operating cycle or one year.
The excess of total current assets over total current liabilities is referred to as working capital.
Working capital represents the net amount of a company’s relatively liquid resources. That is, it is
the liquidity buffer available to meet the financial demands of the operating cycle.
The account form lists assets, by sections, on the left side, and equity and liabilities, by sections,
on the right side. The main disadvantage is the need for a sufficiently wide space in which to
present the items side by side. Often, the account form requires two facing pages. To avoid this
disadvantage, the report form lists the section one above the other, on the same page.
The primary purpose of the statement of cash flows is to provide relevant information about the
cash receipts and cash payments of an enterprise during a period. To achieve this purpose, the
statement of cash flows reports the following: (1) the cash effects of operations during a period,
(2) investing transactions, (3) financing transactions, and (4) the net increase or decrease in cash
during the period.
Companies classify cash receipts and cash payments during a period into three different activities
in the statement of cash flows:
1. Operating activities involve the cash effects of transactions that enter into the determination of
net income
2. Investing activities include making and collecting loans and acquiring and disposing of
investments and property, plant and equipment
3. Financing activities involve liability and equity items. They include (a) obtaining resources from
owners and providing them with a return on their investment, and (b) borrowing money from
creditors and repaying the amount borrowed.
The statement’s value is that it helps users evaluate liquidity, solvency, and financial flexibility. As
stated earlier, liquidity refers to the ‘’nearness to cash’’ of assets and liabilities. Solvency is the
firm’s ability to pay its debts as they mature. Financial flexibility is a company’s ability to respond
and adapt to financial adversity and unexpected needs and opportunities.
Companies obtain the information to prepare the statement of cash flow from several sources:
(1) comparative statements of financial position, (2) the current income statement, and (3)
selected transaction data.
Preparing the statement of cash flows from the sources involves four steps:
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