Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

College: ARTS AND SCIENCES

Campus : BAMBANG CAMPUS

DEGREE PROGRAM BSCOOP COURSE NO. COOP 8

COOPERATIVE FINANCIAL ANALYSIS AND
SPECIALIZATION COURSE TITLE
REPORTING
YEAR LEVEL 3 TIME FRAME 6 hrs WK NO. 2 - 3 IM NO. 01

I. UNIT TITLE/CHAPTER TITLE : PART I: FINANCIAL REPORTING STANDARDS ON THE PREPARATION

AND PRESENTATION OF GENERAL-PURPOSE FINANCIAL
STATEMENTS

II. LESSON TITLE :

1. Purpose of Financial Statements
2. Complete set of Financial Statements
3. General features of Financial Statements
4. Identification of Financial Statements

III. LESSON OVERVIEW

Financial Analysis and Reporting is an integral part of overall financial analysis carried out by various business organizations
in the Philippines and all around the world. It depicts the financial health of any company and helps the companies to augment
their financial resources and management of generated funds efficiently. It compels the business firms to remain judicious in
fund allocation to different activities and sub-activities and use the generated funds carefully. Financial analysis guides the
companies about their future course of action and the direction that any particular company should move on.

To make an informed choice or recommendation, it is necessary to do a financial analysis, which involves evaluating a
company's financial performance in relation to its industry and the overall economy. Often, the decisions and
recommendations addressed by financial analysts pertain to supplying capital to companies—specifically, whether to invest
in the company’s debt or equity instruments and at what price. The ability of a corporation to make interest and principal
payments is a major concern for a buyer of debt securities. Investors in equity securities are concerned with dividends and
the potential for the share price to rise; they are also owners with a residual stake in the company.

IV. DESIRED LEARNING OUTCOMES :

Upon completion of this module, the student should be able to:

1. Explain the purpose of Financial Statements;

2. Identify composition of a complete set of Financial Statements;
3. Identify and explain the general features of financial statements and how they are applied in the preparation
and presentation of financial statements; and
4. Explain the structure of financial statements and how they are identified.

V. LESSON CONTENT

Financial analysis is the process of examining a company’s performance in the context of its industry and economic
environment in order to arrive at a decision or recommendation. Often, the decisions and recommendations addressed by
financial analysts pertain to providing capital to companies—specifically, whether to invest in the company’s debt or equity
securities and at what price. An investor in debt securities is concerned about the company’s ability to pay interest and to
repay the principal lent. An investor in equity securities is an owner with a residual interest in the company and is concerned
about the company’s ability to pay dividends and the likelihood that its share price will increase.

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

Overall, a central focus of financial analysis is evaluating the company’s ability to earn a return on its capital that is at least
equal to the cost of that capital, to profitably grow its operations, and to generate enough cash to meet obligations and pursue
opportunities.

Fundamental financial analysis starts with the information found in a company’s financial reports. These financial reports
include audited financial statements, additional disclosures required by regulatory authorities, and any accompanying
(unaudited) commentary by management. Basic financial statement analysis—as presented in this reading—provides a
foundation that enables the analyst to better understand other information gathered from research beyond the financial
reports.

DEFINITION OF FINANCIAL STATEMENTS

➢ A financial statement is a report that shows the financial activities and performance of a business. It is used by lenders
and investors to check a business’s financial health and earnings potential.

Financial statements can cover any period of time, although they’re most commonly prepared at the end of a month,
a quarter, or a year.

PURPOSE OF FINANCIAL STATEMENTS

1. The primary purpose of financial reports is to provide information and data about a company’s financial position and
performance, including profitability and cash flows. The information presented in the reports —including the financial
statements and notes and management’s commentary or management’s discussion and analysis—allows the
financial analyst to assess a company’s financial position and performance and trends in that performance.

2. Financial statements provide a snapshot of a corporation's financial health, giving insight into its performance,
operations, and cash flow. Financial statements are essential since they provide information about a company's
revenue, expenses, profitability, and debt.

3. The general purpose of the financial statements is

to provide information about the results of
operations, financial position, and cash flows of an
organization. This information is used by the
readers of financial statements to make decisions
regarding the allocation of resources. At a more
refined level, there is a different purpose
associated with each of the financial statements.
The income statement informs the reader about the
ability of a business to generate a profit. In addition,
it reveals the volume of sales, and the nature of the
various types of expenses, depending upon how
expense information is aggregated. When
reviewed over multiple time periods, the income
statement can also be used to analyze trends in the
results of company operations.

COMPLETE SET OF FINANCIAL STATEMENTS

➢ The primary financial statements are the statement
of financial position (i.e., the balance sheet), the
statement of comprehensive income, the statement
of changes in equity, the statement of cash flows
and the notes to financial statements.

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

1. Statement of Financial Position (Balance Sheet)

➢ The statement of financial position, often called the balance sheet, is a financial statement that reports
the assets, liabilities, and equity of a company on a given date. In other words, it lists the resources,
obligations, and ownership details of a company on a specific day. You can think of this like a snapshot
of what the company looked like at a certain time in history.

This definition is true in the sense that this statement is a historical report. It only shows the items that
were present on the day of the report. This is in contrast with other financial reports like the income
statement that presents company activities over a period of time. The statement of financial position only
records the company account information on the last day of an accounting period.

In this sense, investors and creditors can go back in time to see what the financial position of a company
was on a given date by looking at the balance sheet.

As you can see from our example template, each balance sheet account is listed in the accounting
equation order. This organization gives investors and creditors a clean and easy view of the company’s
resources, debts, and economic position that can be used for financial analysis purposes.

Investors use this information to compare the company’s current performance with past performance to
gauge the growth and health of the business. They also compare this information with other companies’
reports to decide where the opportune place is to invest their money.

Format
The statement of financial position is formatted like the accounting equation (assets = liabilities + owner’s
equity). Thus, the assets are always listed first.

Assets Section
Assets are resources that the company can use to create goods or provide services and generate
revenues. There are many ways to format the assets section, but the most common size balance sheet
divides the assets into two sub-categories: current and non-current. The current assets include cash,
accounts receivable, and inventory. These resources are typically consumed in the current period or
within the next 12 months.

The non-current assets section includes resources with useful lives of more than 12 months. In other
words, these assets last longer than one year and can be used to benefit the company beyond the current
period. The most common non-current assets include property, plant, and equipment.

Liabilities Section
Liabilities are debt obligations that the company owes other companies, individuals, or institutions. These
range from commercial loans, personal loans, or mortgages. This section is typically split into two main
sub-categories to show the difference between obligations that are due in the next 12 months, current
liabilities, and obligations that mature in future years, long-term liabilities.

Current debt usually includes accounts payable and accrued expenses. Both of these types of debts
typically become due in less than 12 months. The long-term section includes all other debts that mature
more than a year into the future like mortgages and long-term notes.

Equity Section
Equity consists of the ownership of the company. In other words, this measures their stake in the
company and how much the shareholders or partners actually own. This section is displayed slightly
different depending on the type of entity. For example a corporation would list the common stock,
preferred stock, additional paid-in capital, treasury stock, and retained earnings. Meanwhile, a
partnership would simply list the members’ capital account balances including the current earnings,
contributions, and distributions.

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

In the world of nonprofit accounting, this section of the statement of financial position is called the net
assets section because it shows the assets that the organization actually owns after all the debts have
been paid off. It’s easier to understand this concept by going back to an accounting equation example. If
we rearrange the accounting equation to state equity = assets – liabilities, we can see that the equity of
a non-profit is equal to the assets less any outstanding liabilities.

Does the Balance Sheet always balance?

Notice that the balance sheet is always in balance. Just like the accounting equation, the assets must
always equal the sum of the liabilities and owner’s equity. This makes sense when you think about it
because the company has only three ways of acquiring new assets.

It can use an asset to purchase and a new one (spend cash for something else). It can also take out a
loan for a new purchase (take out a mortgage to purchase a building). Lastly, it can take money from the
owners for a purchase (sell stock to raise cash for an expansion). All three of these business events
follow the accounting equation and the

2. Statement of Comprehensive Income (Income Statement)

➢ The income statement, also called the profit and loss statement, is a report that shows the income,
expenses, and resulting profits or losses of a company during a specific time period. The income
statement is the first financial statement typically prepared during the accounting cycle because the net
income or loss must be calculated and carried over to the statement of owner’s equity before other
financial statements can be prepared.

The income statement calculates the net income of a company by subtracting total expenses from total
income. This calculation shows investors and creditors the overall profitability of the company as well as
how efficiently the company is at generating profits from total revenues.

The income and expense accounts can also be subdivided to calculate gross profit and the income or
loss from operations. These two calculations are best shown on a multi-step income statement. Gross
profit is calculated by subtracting cost of goods sold from net sales. Operating income is calculated by
subtracting operating expenses from the gross profit.

Unlike the balance sheet, the income statement calculates net income or loss over a range of time. For
example annual statements use revenues and expenses over a 12-month period, while quarterly
statements focus on revenues and expenses incurred during a 3-month period.

Income Statement Format

There are two income
statement formats that are
generally prepared.

▪ Single-step income
statement – the single
step statement only
shows one category of
income and one
category of expenses.
This format is less
useful of external users
because they can’t
calculate many
efficiency and
profitability ratios with
this limited data.

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

▪ Multi-step income statement – the multi-step statement separates expense accounts into more
relevant and usable accounts based on their function. Cost of goods sold, operating and non-
operating expenses are separated out and used to calculate gross profit, operating income, and
net income.

In both income statement formats, revenues are always presented before expenses. Expenses can be
listed alphabetically or by total dollar amount. Either presentation is acceptable.

What is considered an expense on the income statement?

➢ Expenses are outlays of resources for goods or services. These costs include wages,
depreciation, and interest expense among others. They are reported on several sections of the
income statement. Cost of goods sold expenses are reported in the gross profit reporting section
while the operating expenses are reported in the operations section. Other expenses are
reported further down the statement in the other gains and losses section.

How do you calculate the income statement?

➢ The income statement is used to calculate the net income of a business. The P&L formula is
Revenues – Expenses = Net Income. This is a simple equation that shows the profitability of a
company. If revenue is higher than expenses, the company is profitable. If revenue is lower than
expenses, the company is unprofitable.

What is a multi-step income statement?

➢ A multi-step statement splits the business activities into operating and non-operating categories.
The operating section includes sales, cost of goods sold, and all selling and admin expenses.
The non-operating section includes other income or expenses like interest or insurance
proceeds.

How do you make an income statement?

➢ Creating an income statement is fairly easy. Simply follow these steps:

i. Determine the Time Period

ii. Transfer Income Accounts for Trial Balance into our template
iii. Transfer Expense Accounts for Trial Balance into our template
iv. Transfer Other Gains and Losses
v. Calculate the Net Income
vi. Use one of our templates to list the sales, expenses, and other gains or losses in the
correct format. At the bottom of the statement, compute the net income for the company.

3. STATEMENT OF CHANGES IN EQUITY

➢ Statement of stockholder’s equity, often called the statement of changes in equity, is one of the
general-purpose financial statements and is the second financial statement prepared in the accounting
cycle. This statement displays how equity changes from the beginning of an accounting period to the
end.

The statement of stockholder’s equity displays all equity accounts that affect the ending equity balance
including common stock, net income, paid in capital, and dividends. This in-depth view of equity is best
demonstrated in the expanded accounting equation.

In other words, the statement of stockholder’s equity is a basic reconciliation of how the ending equity is
calculated. How did the equity balance on January 1 turn into the equity balance on December 31?

First, the beginning equity is reported followed by any new investments from shareholders along with net
income for the year. Second all dividends and net losses are subtracted from the equity balance giving
you the ending equity balance for the accounting period.

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

As you can see, net income is needed to calculate the ending equity balance for the year. This is why
the statement of changes in equity must be prepared after the income statement.

Format
This statement has four sections:

▪ Beginning balance
▪ Additions
▪ Subtractions
▪ Ending Balance

The beginning equity balance is always listed on its own line followed by two indented sections: additions
and subtractions. Additions include new investments and net income if the company is profitable. If the
company is not profitable, net loss for the year is included in the subtractions along with any dividends
to the owners. The last line on this statement always lists the ending equity balance.

Like all financial statements, the statement of stockholder’s equity has a heading that display’s the
company name, title of the statement and the time period of the report. For example, an annual income
statement issued by Paul’s Guitar Shop, Inc. would have the following heading:

Paul’s Guitar Shop, Inc.

Statement of Stockholder’s Equity
For the Year Ended December 31, 2015

4. STATEMENT OF CASH FLOWS

➢ The statement of cash flows, also called the cash flow statement, is the fourth general-purpose financial
statement and summarizes how changes in balance sheet accounts affect the cash account during the
accounting period. It also reconciles beginning and ending cash and cash equivalents account balances.

This statement shows investors and creditors what transactions affected the cash accounts and how
effectively and efficiently a company can use its cash to finance its operations and expansions. This is
particularly important because investors want to know the company is financially sound while creditors
want to know the company is liquid enough to pay its bills as they come due. In other words, does the
company have good cash flow?

The term cash flow generally refers to a company’s ability to collect and maintain adequate amounts of
cash to pay its upcoming bills. In other words, a company with good cash flow can collect enough cash
to pay for its operations and fund its debt service without making late payments.

Format and Template

The cash flow statement format is divided into three main sections: cash flows from operating activities,
investing activities, and financing activities.

▪ Operating Activities
Cash flows from operating activities include transactions from the operations of the business. In
other words, the operating section represent the cash collected from the primary revenue
generating activities of the business-like sales and service income. Operating activities are short-
term and only affect the current period. For example, payment of supplies is an operating activity
because it relates to the company operations and is expected to be used in the current period.
Operating cash flows are calculated by adjusting net income by the changes in current asset and
liability accounts.

▪ Investing Activities
Cash flows from investing activities consist of cash inflows and outflows from sales and
purchases of long-term assets. In other words, the investing section of the statement represents

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

the cash that the company either collected from the sale of a long-term asset or the amount of
money spent on purchasing a new long-term asset. You can think of this section as the company
investing in itself. The investments are long-term in nature and expected to last more than one
accounting period. Investing cash flows are calculated by adding up the changes in long-term
asset accounts.

▪ Financing Activities
Cash flows from financing consists of cash transactions that affect the long-term liabilities and
equity accounts. In other words, the financing section on the statement represents the amount
of cash collected from issuing stock or taking out loans and the amount of cash disbursed to pay
dividends and long-term debt. You can think of financing activities as the ways a company
finances its operations either through long-term debt or equity financing. Financing cash flows
are calculated by adding up the changes in all the long-term liability and equity accounts.

Operating Activities: includes all activities

that are reported on the income statement
under operating income or expenses.

Investing Activities: includes all cash

transactions used to buy or sell long-term
assets. Think of these as the company
investing in itself.

: includes all cash transactions that affect

long-term liabilities and equity. Whenever
long-term debt Financing Activities or
equity is involved, it is considered a financing
activity.

Like all financial statements, the statement of

cash flows has a heading that display’s the
company name, title of the statement and the
time period of the report. For example, an
annual income statement issued by Paul’s
Guitar Shop, Inc. would have the following
heading:

Paul’s Guitar Shop, Inc.

Cash Flow Statement
December 31, 2015

What is the Statement of Cash Flows Direct Method?

The cash flow statement presented using the direct method is easy to read because it lists all of the major
operating cash receipts and payments during the period by source. In other words, it lists where the cash inflows
came from, usually customers, and where the cash outflows went, typically employees, vendors, etc.

After all of the sources are listed, the total cash payments are then subtracted from the cash receipts to compute
the net cash flow from operating activities. Then the investing and financing activities added to arrive at the net
cash increase or decrease. Let’s take a look at how this report is formatted and structured.

Format
Here’s a list of the most common types of receipts and payments used in the direct method format:
▪ Receipts received from Customers
▪ Payments paid to Suppliers

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

▪ Payments paid to Employees

▪ Interest Payments
▪ Income Tax Payments

As you can see, listing these payments gives

the financial statement user a great deal of
information where receipts are coming from
and where payments are going to. This is one
of the main advantages of the direct method
compared with the indirect method. Investors,
creditors, and management can actually see
where the company is collecting funds from
and whom it is paying funds to. The indirect
method doesn’t list these types of details.
That’s exactly why FASB recommends that all
companies issue their statement of cash flows
in the direct method.

The problem with this method is it’s difficult

and time consuming to create. Most
companies don’t record and store accounting
and transactional information by customer,
supplier, or vendor. Business events are
recorded with income statement and balance
sheet accounts like sales, materials, and
inventory. It’s laborious for most companies to
compile the information with this method.

For example, in order to figure out the receipts and payments from each source, you have to use a unique formula.
The receipts from customers equals net sales for the period plus the beginning accounts receivable less the
ending accounts receivable. Similarly the payments made to suppliers is calculated by adding the purchases,
ending inventory, and beginning accounts payable then subtracting the beginning inventory and ending accounts
payable.

Keep in mind that these formulas only work if accounts receivable is only used for credit sales and accounts
payable is only used for credit account purchases. This is why most companies don’t issue this method. It’s
difficult to gather the information.

Plus, the direct method also requires a reconciliation report be created to check the accuracy of the operating
activities. The reconciliation itself is very similar to the indirect method of reporting operating activities. It stars
with net income and adjusts non-cash transaction like depreciation and changes in balance sheet accounts. Since
creating this reconciliation is about as much work as just preparing an indirect statement, most companies simply
choose not to use the direct method.

I know what you are probably thinking. If you have to do an additional reconciliation, why is it called the direct
method. It seems like a whole like more work. Well, it is. The reason why it’s called that has nothing to do with
how much work is involved in preparing the report. It has to do with how the operating cash flows are derived.
This method looks directly at the source of the cash flows and reports it on the statement. The indirect method,
on the other hand, computes the operating cash flows by adjusting the current year’s net income for changes in
balance sheet accounts.

This is the only difference between the direct and indirect methods. The investing and financing activities are
reported exactly the same on both reports.

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NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

What is the Statement of Cash Flows Indirect Method?

The statement of cash flows prepared using the indirect method adjusts net income for the changes in balance
sheet accounts to calculate the cash from operating activities. In other words, changes in asset and liability
accounts that affect cash balances throughout the year are added to or subtracted from net income at the end of
the period to arrive at the operating cash flow.

The operating activities section is the only difference between the direct and indirect methods. The direct method
lists all receipts and payments of cash from individual sources to compute operating cash flows. This is not only
difficult to create; it also requires a completely separate reconciliation that looks very similar to the indirect method
to prove the operating activities section is accurate.

Companies tend to prefer the indirect presentation to the direct method because the information needed to create
this report is readily available in any accounting system. In fact, you don’t even need to go into the bookkeeping
software to create this report. All you need is a comparative income statement. Let’s take a look at the format
and how to prepare an indirect method cash flow statement.

Format
The indirect operating activities section always starts out with the net income for the period followed by non-cash
expenses, gains, and losses that need to be added back to or subtracted from net income. These non-cash
activities typically include:

▪ Depreciation expense
▪ Amortization expense
▪ Depletion expense
▪ Gains or Losses from sale of
assets
▪ Losses from accounts
receivable
▪ The non-cash expenses and
losses must be added back
in and the gains must be
subtracted.

The next section of the operating

activities adjusts net income for the
changes in asset accounts that
affected cash. These accounts
typically include:

▪ Accounts receivable
▪ Inventory
▪ Prepaid expenses
▪ Receivables from
employees and owners

This is where preparing the indirect

method can get a little confusing.
You need to think about how
changes in these accounts affect
cash in order to identify what way
income needs to be adjusted. When
an asset increases during the year,
cash must have been used to
purchase the new asset. Thus, a net
increase in an asset account actually

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decreased cash, so we need to subtract this increase from the net income. The opposite is true about decreases.
If an asset account decreases, we will need to add this amount back into the income. Here’s a general rule of
thumb when preparing an indirect cash flow statement:

▪ Asset account increases: subtract amount from income

▪ Asset account decreases: add amount to income

The last section of the operating activities adjusts net income for changes in liability accounts affected by cash
during the year. Here are some of the accounts that usually are used:

▪ Accounts payable
▪ Accrued expenses

Get ready. If you weren’t confused by the assets part, you might be for the liabilities section. Since liabilities have
a credit balance instead of a debit balance like asset accounts, the liabilities section works the opposite of the
assets section. In other words, an increase in a liability needs to be added back into income. This makes sense.
Take accounts payable for example. If accounts payable increased during the year, it means we purchased
something without using cash. Thus, this amount should be added back. Here’s a basic tip that you can use for
all liability accounts:

▪ Liability account increases: add amount from income

▪ Liability account decreases: subtract amount to income

All of these adjustments are totaled to adjust the net income for the period to match the cash provided by operating
activities.

As you can see, the operating section always lists net income first followed by the adjustments for expenses,
gains, losses, asset accounts, and liability accounts respectively.

Although most standard setting bodies prefer the direct method, companies use the indirect method almost
exclusively. It’s easier to prepare, less costly to report, and less time consuming to create than the direct method.
Standard setting bodies prefer the direct because it provides more information for the external users, but
companies don’t like it because it requires an additional reconciliation be included in the report. Since the indirect
method acts as a reconciliation itself, it’s far less work for companies to simply prepare this report instead.

5. NOTES TO FINANCIAL STATEMENTS

➢ In addition to the amounts that are reported on the face of the financial statements, US GAAP requires that
additional information be provided as notes to the financial statements. To alert the readers of these important
disclosures, each financial statement is required to make reference to them. The following are some
examples of the reference found at the bottom of each financial statement:

▪ See accompanying notes.

▪ See accompanying notes to the financial statements.
▪ The accompanying notes are an integral part of these financial statements.
▪ The accompanying Notes to the Financial Statements are an integral part of this statement.
▪ See Notes to Consolidated Financial Statements.

The notes (or footnote disclosures) are required by the full disclosure principle because the amounts and line
descriptions on the face of the financial statements cannot provide sufficient information. In fact, there may
be some large potential losses that cannot be expressed as a specific amount, but they are critical information
for lenders, investors, and others.

The notes usually begin with the corporation's significant accounting policies. This note describes how
revenues were recognized on the income statement, how inventory is accounted for, etc. Our review of the
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financial statements of 20 publicly-traded corporations showed notes on the following topics:

▪ Nature of business ▪ Commitments and contingencies

▪ Investments ▪ Foreign currency translation
▪ Employee benefit plans ▪ Deferred compensation
▪ Basis of consolidation ▪ Stock options
▪ Accounts receivable ▪ Business segments
▪ Pensions and postretirement health ▪ Leases
plans ▪ Stock repurchase program
▪ Use of estimates ▪ Significant customers
▪ Inventories ▪ Impairment of long-lived assets
▪ Fair value measurement ▪ Accumulated other comprehensive
▪ Revenue recognition income
▪ Property, plant and equipment ▪ Cash and cash equivalents
▪ Long-term debt and available credit ▪ Accrued liabilities
▪ Fiscal periods ▪ Recent accounting pronouncements
▪ Goodwill and other intangible assets

OTHER INFORMATION PERTAINING TO FINANCIAL STATEMENTS

Consolidated Financial Statements

It is common for a large business to consist of several legal corporations. However, those separate legal
corporations (called subsidiaries) are owned and controlled by one of the corporations (the parent
corporation). The shares of common stock of the parent corporation are often traded on a major stock
exchange. Those stockholders are interested in receiving financial statements which report the results and
financial position of the entire economic entity, which is all of the subsidiaries and the parent corporation.

The consolidated financial statements report the results of the transactions that occurred between the
economic entity and its customers, suppliers, and others outside of the economic entity. For example, the
consolidated income statement will report the sales made to customers who are outside of the economic
entity. (The sales and the related purchases made between the subsidiaries and between the subsidiaries
and the parent corporation are not included.)

Similarly, a consolidated balance sheet reports the amounts owed to lenders outside of the economic entity.
(The loans and borrowings between subsidiaries and between the subsidiaries and the parent corporation
are not included.)

In the review of 20 corporations whose stock was traded on a major stock exchange, all of the corporations
had:

▪ Consolidated income statements

▪ Consolidated statements of comprehensive income
▪ Consolidated balance sheets
▪ Consolidated statements of stockholders' equity
▪ Consolidated statements of cash flows
▪ Notes to the consolidated financial statements
▪ Comparative Financial Statements

When a financial statement reports the amounts for the current year and for one or two additional years, the
financial statement is referred to as a comparative financial statement. For example, the income statement
of a large corporation with its shares of stock traded on a stock exchange might have as its heading
"Consolidated Statements of Income" and will report the amounts for 2022, 2021, and 2020. This allows the
user to compare sales that occurred in 2022 to the sales that occurred in 2021 and in 2020.

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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

The balance sheet of the same corporation will have as its heading "Consolidated Balance Sheets" and will
report the amounts as of the final instant as of December 31, 2022 and the final instant as of December 31,
2021.

Audited Financial Statements

Some corporations may be required to have their external financial statements audited. This requires
independent certified public accountants to provide assurance that the financial statements present fairly the
financial position, results of operations, and cash flows of the corporation according to US GAAP.

If a corporation's stock is not traded on a stock exchange and no one requires audited financial statements,
the financial statements do not have to be audited. (Corporations with its stock trading on a stock exchange
must have its financial statements audited by a registered firm of independent CPAs.)

Publicly-Traded Corporations
When a U.S. corporation's shares of stock are traded on a stock exchange, we say that the shares are
publicly traded or publicly held. We also refer to the corporation as a publicly-traded corporation.

In addition to US GAAP the external financial statements of a publicly-traded U.S. corporation must comply
with the reporting requirements of the U.S. government agency, Securities and Exchange Commission
(SEC). Among the many required reports is the Annual Report to the SEC, Form 10-K. The Form 10-K must
include audited, comparative financial statements.

Typically, the large, publicly-held corporations will be issuing consolidated financial statements. Examples of
the headings are shown below. (In parentheses we show the number of years for which amounts will appear.)

▪ Consolidated statements of income (3 years)

▪ Consolidated statements of comprehensive income (3 years)
▪ Consolidated balance sheets (end-of-year amounts for 2 years)
▪ Consolidated statements of stockholders' equity (3 years)
▪ Consolidated statements of cash flows (3 years)
▪ Notes to the consolidated financial statements

Since the corporation's shares of stock are publicly traded, the consolidated financial statements must be
audited by a registered firm of independent certified public accountants.

Other parts of Form 10-K include Management's Discussion and Analysis of Financial Condition and Results
of Operations, as well as a certification by management on the corporation's internal controls, a statement of
management's responsibility for the financial statements, disclosures of risk, legal proceedings, and more.

In addition to the annual consolidated financial statements, the publicly-held corporation will issue quarterly
consolidated financial statements. These are referred to as interim financial statements and will be more
condensed (fewer details), reviewed by the registered CPA and will be part of the corporation's Quarterly
Report to the Securities and Exchange Commission (Form 10-Q).

VI. LEARNING ACTIVITIES

MULTIPLE CHOICE:

1. Which financial statement reports the revenues and expenses for a period of time such as a year or a month?
a. Balance Sheet c. Statement of Changes in Equity
b. Income Statement d. Statement of Cash Flows

2. Which financial statement reports the assets, liabilities, and stockholders' (owner's) equity at a specific
date?
a. Balance Sheet c. Statement of Changes in Equity
b. Income Statement d. Statement of Cash Flows

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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

3. Revenues minus expenses equals __________.

a. Assets b. Liabilities c. Expenses d. Income

4. Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet
and are referred to as __________
a. Assets b. Liabilities c. Expenses d. Income

5. Assets are usually reported on the balance sheet at which amount?

a. Cost c. Realizable value
b. Current Market Value d. Expected Selling Price

6. Obligations (amounts owed) are reported on the balance sheet and are referred to as __________.
a. Assets b. Liabilities c. Expenses d. Income

7. Unearned Revenues is what type of account?

a. Assets b. Liabilities c. Expenses d. Income

8. Accounting entries involve a minimum of how many accounts?

a. One b. Two c. Three d. Four

9. Assets minus liabilities equals __________.

a. Assets b. Liabilities c. Owner’s Equity d. Revenue

10. Which term is associated with "left" or "left side"?

a. Debit b. Credit c. Revenue d. Expenses

11. Which term is associated with "right" or "right side"?

a. Debit b. Credit c. Revenue d. Expenses

12. When cash is received, the account Cash will be __________.

a. Debited b. Credited c. Revenue d. Expenses

13. When a company pays a bill, the account Cash will be __________.
a. Debited b. Credited c. Revenue d. Expenses

14. What will usually cause an asset account to increase?

a. Debit b. Credit c. Revenue d. Expenses

15. What will usually cause the liability account Accounts Payable to increase?
a. Debit b. Credit c. Revenue d. Expenses

VII. ASSIGNMENT

SCRAMBLE WORDS

_______________________ 1. The financial statement that is described as a "snapshot" of a company’s financial

position is the ______________ sheet. AELBCNA
_______________________ 2. The __________ method (or basis) of accounting reports expenses when they are
incurred (as opposed to when they are paid). CUCLARA
_______________________ 3. Land is an asset that is not ____________________. ETDPDRCAEIE
_______________________ 4. An asset's book value is its cost minus its __________________ depreciation.
UDTCAMALUCE
_______________________ 5. The amount of prepaid insurance that has expired in the accounting period is reported
as an _____________. SNEEEPX

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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

_______________________ 6. A credit entry will cause the Cash account balance to _____________.
EEESRADC
_______________________ 7. Assets = Liabilities + Stockholders’ Equity is known as the basic accounting
________________. UETOIANQ
________________________ 8. _____________ will cause a corporation's Stockholders' Equity to increase.
EEERSUVN
________________________ 9. A listing of the general ledger accounts that does not include the account balances
is the _________ of accounts. TRCAH
________________________ 10. The general ledger accounts whose balances are closed at the end of the
accounting year are the ____________ statement accounts. NMICEO
________________________ 11. The statement of cash flows reports amounts according to three activities:
_____________, financing, and investing. NOAEGTPIR
________________________ 12. The amount of prepaid insurance that has not expired as of the end of the
accounting period is reported as an __________. ESTA
________________________ 13. Property is not reported at its current market value because of the cost
____________. RECIPILPN
________________________ 14. The _________-entry system means that each transaction will affect a minimum
of two accounts and that debits must equal credits. UELDBO
________________________ 15. Unearned Revenues is reported on the balance sheet as a ______________.
IIIYBTALL
________________________ 16. Under the accrual method, the account that is debited at the time of a sale on credit
is Accounts _____________. EEEIBRALVC
________________________ 17. Under the accrual method, revenues are reported on the income statement when
they are ______________. DRAEEN
________________________ 18. Under the accrual method, when a company purchases goods from a supplier on
credit the company will credit Accounts _____________. YEPBAAL
________________________ 19. This is an allocation process (not a valuation process) associated with equipment
and other plant assets. EIEIDAPCNRTO
________________________ 20. The component of stockholders' equity that serves as a link to the corporation's
income statement is retained _______________. GRSENANI

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 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: COOP8-2ndSEM-2022-2023

ANSWER SHEET
Chapter 1: Cooperative Financial Analysis and Reporting
NAME: ___________________________________________________________ Date: ___________________________

Course and Section: ________________________________________________ Score: __________________________

MULTIPLE CHOICE: Assess each statement and choose the best answer on the choices given. ERASURES NOT

ALLOWED.

1 6 11

2 7 12

3 8 13

4 9 14

5 10 15

SCRAMBLE WORDS:

1 11
2 12
3 13
4 14
5 15
6 16
7. 17
8. 18
9. 19
10. 20

Good luck and God bless!

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