d t Accounting information Should we buy stock in a company? Should we extend a line of credit to a company? Should we continue with ourrent operations or change how we do business These are the types of questions stakeholders ask themselves. Stakeholders require useful accounting Information in order to make accurate financial dedisions. In accordance with a generally accepted accounting principles (GAAP), a company's financial statement must contain accurate accounting information and is used in financial reporting How do you know whether accounting information is useful? Review each of the accounting concepts below that describe the qualitative characteristics of accounting information. The Qualitative Characteristics of Accounting Information Consistency Materiality Comparability Conservatism Understandability Reliability Relevance In each of the following scenarios, which accounting concept is being violated? ts dr eet 1. A major explosion at a company's main production facilty caused a two-morth stopage of operations during a busy time of year. it went rreported becaue thurtent was too low Select are concerned may not make it through the year. This information was included in your company's financial statements 2, A conm current period. This seems odd, as it was Just changed 3. Your company has decided to change its method of accounting for depreciation of some last year, it is becoming dificult to compare numbers 4. The accountants at your company have decided to create the financial statements in taian becane he owner of the equipment used in the production process in the essociated with depreciation from one year to the next. Setect company came from eay. Seleet 5. A potential investor wishes to determine whether to invest in your forgot to disclose the company's accounting policy for depreciation.Selec s. Your company is looking to expand through acquistion into the business of mcroprocesos,. The CrO clems that s mother's privately held company wouid be a serfect nt for the acoquistion Unfortunately, there is no paper trail of her company's performance, and it is posuole that the compeny desnt even make meprocessorsct 7, Decause of recent technological breakthroughs in microprocessor development, your company's ourrent nventory couid be purchased on the market for sigficaney les than the vae t whch you are holding it on your books. However, the accountants have decioes rot to write down the vake of the inventory on the booksSeeca company or in a compestor's. On the surface, it appears that your company has less depreciabon expense, e e ree nenese menenarea see The financial statements ( Financial staternents are the primary source or a company's accounong infomation. Oen om naesa given scenarios The financial statements Financial statements are the primary source of a company's accounting Information. Open each financial statement for more information, and decide which statement would work best for each of the given scenarios. Types of Financial Statements Statement of retained earnings ncome statement Statement of cash flows alance sheet Financial Statement Desired Action 1. Compare revenues with expenses and analyze profitability Select 2. Assess how the company finances its assets 3. Analyze how much cash was spent on investing activities 4. Compare retained earnings at the beginning of the perlod with those at the end of it 5. See a snapshot of a company's financial position at a given point in time APPLY THE CONCEPTS Construct the income statement between a single step and a mutiple-step format, Open the links to see and a mutipe-steo ftormer. Open the links to sexples of each while taing When constructing the income statement, it is important t care to study their unique characteristics to understand the distinction Single-Step eome Mateme Multiple-step Income Statement t12calar er Co, has compitea ah floming ctro Coldwater Co. has compiled the temporary accounts are clhsed. in addition, the Notes Payable baiance includes notes payable of $24,250 due Construct Coldwater's + Trial Baiance The bailance in the Retained Earnings account refects the account balance before t within the next year and $91,480 of notes payabile that are not due for several years. Use the information piven to create Coidwater Co's annual fancial statements multipie-step income statement for 2012 Enter ail amounts as positive numbers MacBook A Multiple-step Income Statement Coldwater Co. has compled the following account balances from ts general ledger on Auqust 31, 2012 (the last day of its fiscal year). + Trial Balance The balance in the Retained Earnings account reflects the account balance before temporary accounts are closed. In addition, the Notes Payable balance includes notes payable of $24,250 due within the next year and $91,480 of notes payable that are not due for several years Use the information given to create Coldwater Co.'s annual financial statements. Construct Coldwater's multiple-step income statement for 2012 Enter all amounts as positive numbers Coldwater Co. Income Statement (Multiple-step) For the Year Ending August 31, 2012 765 330 Total operating expense MacBook A 765,310 Total operating expense Other revenues and expenses Excess of other revenues over other expenses 23 APPLY THE CONCEPTS: Construct the statement of retained earnings The statement of retained earnings shows the change in retained earnings as a result of net Income and any dividends declared. It also serves as an important ink between the income statement and the balance sheet in that it translates the effects of net income into an updated number for retained earnings. Construct Coldwater's retained earnings statement for 2012 Coldwater Co Retained Earnings Statement For the Year Ending August 31, 2032 The balance sheet, also known as the statement of financilal position, shows the company's assete and the caims Unlike financial statements that dsplay financial performance ever a given interval of time, the balance sheet a snapshot otfnanal positon at a oven pont n tme. epainst those assets in the form of Habilitbies and storkholsere equity APPLY THE CONCEPTS: Construct the balance sheet 3 MacBook A APPLY TE CONCEPTS; Construct the balance sheet The balance sheet, also known as the statement of financial position, shows the company's assets and the claims against those assets in the form of liabilities and stockholdersequity Unlike financial statements that display financial perfor mance over a given interval o tine, the balance sheet is a gapshot of a tna dal poston atgi en port in ti Construct Coldwater's balance sheet in account form for 2012. Coldwater Co. Balance Sheet August 31, 2012 Assess rent assets Total curret anets ty, plant, and equipment Total property piant, and equgment Total assets MacBoo 8 ota poperty plant, and equipment Total assets Liabilities Current liabilities Total current liabilities Long-term liabilities Total liabilities BEReR Total stockholders' equity Total liabilities and stockholders' equity OIcon Key 23