Principles of Accounting (1)

College of Management and Techology in Alexandria

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Lecture Week 11
Financial Statements Preparation, and the Classified Statement of Financial
Position

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 Learning Objectives
1. Explain how financial statements are prepared from the adjusted
trial balance.
2. Identify the sections of a classified statement of financial
position.

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 Preparing Financial Statements
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Statement
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Copyright ©2018 John Wiley & Son, Inc. 6

Classified Statement of Financial Position
• Presents a snapshot at a point in time
• Assets are grouped as current or noncurrent
• A current asset is one that is expected to be converted into cash in one year or
the company’s normal operating cycle, whichever is longer
• The operating cycle of a company is the time it takes to acquire goods, sell the
goods, and collect cash. For many companies the operating cycle is less than one
year. These companies would classify an asset as current as long as that asset is
expected to be converted into cash within one year
• On the other side liabilities are divided between current and noncurrent
• A current liability is one expected to be paid out of the company’s current assets
within the longer of one year or the normal operating cycle.

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Classified Statement of Financial Position

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Current Assets
• Assets that a company expects to convert to cash or use up within one year or the
operating cycle, whichever is longer
• Accounts usually listed in order of liquidity.

Alphabet Inc.
Statement of Financial Position (partial)
(in thousands)
Current assets
Cash $1,355
Accounts receivable 645
Prepaid expenses 500
Total $2,500

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Long-Term Investments
• Expected to be held for more than one year or the operating cycle
• Investments in stocks and bonds of other companies (purchased in
order to control or own the other company)
• Investments in non-current assets such as land or buildings that are not
currently being used in operating activities
• Long-term notes receivable
Alphabet Inc.
Statement of Financial Position (partial)
(in thousands)
Long-term investments
Notes receivable $1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total $67,500 10
Property, Plant, and Equipment
• Long useful lives
• Currently used in operations (produce or sell products or services)
• Include productive assets of the company along with any land
containing structures such as buildings
• They are all depreciable, except land (Depreciation - allocating the
cost of assets to a number of years, Accumulated depreciation -
total amount of depreciation expensed thus far in the asset’s life)
• Reported at book value (the cost of the asset less any accumulated
depreciation
• Sometimes called fixed assets or plant assets
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Property, Plant, and Equipment
Laclede Group
Statement of Financial Position (partial)
(₩ in billions )
Property, plant, and equipment
Land ₩2,604
Buildings ₩9,487
Structures 1,568
Machinery 36,956
Vehicles 226
Other 10,600 58,837
Less: Accumulated depreciation 32,617
₩28,824

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Intangible Assets
• Long-lived assets that do not have physical substance, used to
produce and sell products and services
• Patents, copyrights, trademarks, and goodwill
• In general, it is very difficult to properly value intangible assets.

Nokia
Statement of Financial Position (partial)
(in millions)
Intangible assets
Goodwill €6,257

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Current Liabilities
• Obligations company is to pay within coming year or its operating
cycle, whichever is longer
• Usually list notes payable first, followed by accounts payable. Other
items follow in order of magnitude
• Common examples are accounts payable, salaries and wages
payable, notes payable, and interest payable

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Current Liabilities

Siemens
Statement of Financial Position (partial)
(in millions)
Current liabilities
Notes Payable € 8,000
Accounts Payable 5,000
€13,000

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Non-Current Liabilities
• Obligations a company expects to pay after one year, or the
company’s operating cycle whichever is longer.
Siemens
Statement of Financial Position (partial)
(in millions)
Non-current liabilities
Long-term debt € 14,260

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Owner’s Equity
• Proprietorship - one capital account
• Partnership - capital account for each partner
• Corporation - Common Stock and Retained Earnings

Halie Capital Ltd.

Statement of Financial Position (partial)
(in thousands)
Equity
Share capital £ 685,934
Retained earnings 1,406,747
Total equity £2,092,681

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References
• Wild, J., Shaw, K., Chiappetta, B. and Samaha, K., 2017. Fundamental
Accounting Principles. 2nd ed. McGraw-Hill Education.
• Weygandt, J., Kimmel, P. and Kieso, D., 2019. Accounting Principles
IFRS Version. Global Edition. Wiley.

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