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    FABM 2 Notes

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    Shiny Natividad
    The document discusses different types of financial statements used by companies: 1. Single-step and multi-step income statements, with the multi-step statement showing operating vs non-operating activities and expenses in more detail. 2. Classified balance sheets that aggregate assets, liabilities, and equity into current/non-current categories. 3. Statements of cash flows show all cash inflows and outflows during a period from operating, investing and financing activities, and are useful for assessing a company's ability to generate future cash flows, pay obligations, and understand differences between net income and cash from operations.

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    FABM 2 Notes

    Uploaded by

    Shiny Natividad
    426 views4 pages
    The document discusses different types of financial statements used by companies: 1. Single-step and multi-step income statements, with the multi-step statement showing operating vs non-operating activities and expenses in more detail. 2. Classified balance sheets that aggregate assets, liabilities, and equity into current/non-current categories. 3. Statements of cash flows show all cash inflows and outflows during a period from operating, investing and financing activities, and are useful for assessing a company's ability to generate future cash flows, pay obligations, and understand differences between net income and cash from operations.

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    The document discusses different types of financial statements used by companies: 1. Single-step and multi-step income statements, with the multi-step statement showing operating vs non-operating activities and expenses in more detail. 2. Classified balance sheets that aggregate assets, liabilities, and equity into current/non-current categories. 3. Statements of cash flows show all cash inflows and outflows during a period from operating, investing and financing activities, and are useful for assessing a company's ability to generate future cash flows, pay obligations, and understand differences between net income and cash from operations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    426 views4 pages

    FABM 2 Notes

    Uploaded by

    Shiny Natividad
    The document discusses different types of financial statements used by companies: 1. Single-step and multi-step income statements, with the multi-step statement showing operating vs non-operating activities and expenses in more detail. 2. Classified balance sheets that aggregate assets, liabilities, and equity into current/non-current categories. 3. Statements of cash flows show all cash inflows and outflows during a period from operating, investing and financing activities, and are useful for assessing a company's ability to generate future cash flows, pay obligations, and understand differences between net income and cash from operations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    FABM 2 Notes

    Inventory Methods
    Types of Income Statements

    1. Single-step Income Statement: In a single-step statement, all data are classified into two
    categories: (1) revenues, which include both operating revenues and other revenues and gains;
    and (2) expenses, which include cost of goods sold, operating expenses, and other expenses
    and losses.

    2. Multi-step Income Statement: The multiple-step income statement is so named because it


    shows several steps in determining net income. Two of these steps relate to the company’s
    principal operating activities. A multiple-step statement also distinguishes between operating and
    nonoperating activities. Finally, the statement highlights intermediate components of income
    and shows subgroupings of expenses.
    Classified Balance Sheet – a classified balance sheet presents information about an entity’s assets,
    liabilities, and shareholder’s equity that is aggregated (or “classified”) into subcategories of accounts
    such as current assets, non-current assets, current liabilities and non-current liabilities.

    Statement of Cash Flows – a financial statement showing all cash inflows and outflows of a
    company/business.

    Usefulness of the Statement of Cash Flows


    The statement of cash flows reports the cash receipts, cash payments, and net change in cash
    resulting from operating, investing, and financing activities during a period. The information in a statement
    of cash flows helps investors, creditors, and others assess the following.

    1. The entity’s ability to generate future cash flows. By examining relationships between items in the
    statement of cash flows, investors can better predict the amounts, timing, and uncertainty of future cash
    flows than they can from accrual-basis data.
    2. The entity’s ability to pay dividends and meet obligations. If a company does not have adequate
    cash, it cannot pay employees, settle debts, or pay dividends. Employees, creditors, and stockholders
    should be particularly interested in this statement because it alone shows the flows of cash in a business.
    3. The reasons for the difference between net income and net cash provided (used) by operating
    activities. Net income provides information on the success or failure of a business. However, some
    financial statement users are critical of accrual-basis net income because it requires many estimates.
    As a result, users often challenge the reliability of the number. Such is not the case with cash. Many
    readers of the statement of cash flows want to know the reasons for the difference between net income
    and net cash provided by operating activities. Then, they can assess for themselves the reliability of the
    income number.
    4. The cash investing and financing transactions during the period. By examining a company’s
    investing and financing transactions, a financial statement reader can better understand why assets and
    liabilities changed during the period.

    Classification of Cash Flows


    The statement of cash flows classifies cash receipts and cash payments as operating, investing, and
    financing activities. Transactions and other events characteristic of each kind of activity are as follows.
    1. Operating activities include the cash effects of transactions that create revenues and expenses. They
    thus enter into the determination of net income.
    2. Investing activities include (a) acquiring and disposing of investments and property, plant, and
    equipment, and (b) lending money and collecting the loans.
    3. Financing activities include (a) obtaining cash from issuing debt and repaying the amounts borrowed,
    and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.

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