Financial Accounting 2.15.11

Financial Accounting 2.15.11 - Accounting Chapter 3 Balance...

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Accounting 2/15/11 Chapter 3 Balance Sheet Amount of assets A = L + E A – L = E Equity is a way of saying net assets Book value usually we speak of as the end of the fiscal year (period) Book value = total assets – intangible assets – liabilities Chapter 4 Income Income Statement Describes what happens between the beginning book value and the ending book value - The income statement focuses on the change in net assets - However, if you’re issuing additional shares of stocks, that’s not going to show up in the income statement but it’s going to affect book value o Issuing shares of stocks, issued at market price, but that increase is contributed capital, in other words, increasing book value o You can also buy back shares in treasury stocks. That will affect net assets or book value - Book value will change by the difference between revenue and expenses, which will change net assets. Difference between revenue and expenses = Retained earnings. Retained earnings is part of net assets. Dividends changes retained earnings (reduce book value or net assets) - Accumulated other comprehensive income (AOCI) changes book value but does not go through income statement o AOCI Account resides in equity portion of balance sheet o Ex. If I increase the value under IFRS ONLY , and I increase the value by 10 million dollars. So debit property plant and
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equipment to increase value on asset side. Then I’m gonna credit AOCI by 10 million dollars in the Equity section. Change net asset or book value, nothing happens in income statement. The recording goes directly to equity o Only applicable to IFRS (This example). US GAAP can’t do that Change in Net Assets 1. Revenue – Expenses: Net Income (Adds to net assets) 2. Issuing shares of stock (Adds to net assets) 3. Buying back shares of stock (Treasury Stock) (reduces net assets) 4. Dividends (reduces net assets) 5. Change in Accumulated Comprehensive Income (Add to net assets) These things are all going to affect book value from the beginning of the period to the end of the fiscal period We’re not focusing on the AMOUNT of something but the CHANGE in something (That’s what income statement is going to give us) Understand how net assets gets changed (income statement is only 1 part of that) Neither IFRS or US GAAP tells company how to present an income statement - no exact format required - so if you see an IFRS or US GAAP income statement, you’re going to see differences in presentation - worst than that, you take 2 US GAAP companies, you’re going to see differences in presentation between those two companies
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- They’re not all going to have the same line items on there - The lines that are always the same is
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This note was uploaded on 02/23/2011 for the course COMMERCE COMM 201 taught by Professor Erickson during the Spring '08 term at UVA.

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Financial Accounting 2.15.11 - Accounting Chapter 3 Balance...

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