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Assume that you just inherited one million yuan.You are advised that investments in equity securities give the highest rate of return.You find annual reports of several companies recommended by the analysts.What useful information would you expect to find in the statements of financial position，the statements of comprehensive income，statements of changes in equity，and the statements of cash flows？
Financial statements are structured representations of the financial position and financial performance of an entity.A complete set of financial statements comprises（IAS 1，par.10）：
（1）a statement of financial position as at the end of the period；
（2）a statement of profit or loss and other comprehensive income for the period；
（3）a statement of changes in equity for the period；
（4）a statement of cash flows for the period；
（5）notes，comprising a summary of significant accounting policies and other explanatory information；comparative information in respect of the preceding period；and
（6）a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements，or when it reclassifies items in its financial statements.
The statement of financial position，used to be called the balance sheet，is a listing of an organization's assets，liabilities and equity as of a certain point of time，known as the reporting date.
Items presented in the statement of financial position are generally classified as current（or short-term）items and non-current（or long-term）items.How long is“current”？ Current means“one year or less than the normal course of the entity's operating cycle.”The operating cycle is the time between the acquisition of materials for processing and their realization in cash or cash equivalents.Accordingly，assets expected to be used and liabilities expected to be paid or otherwise satisfied within short-term are current items.
Current assets include cash，receivables，short-term investments，inventories and prepaid expenses.
Non-current assets，also called fixed assets，generally include those assets which were acquired with the intention of retaining them for the purpose of generating income over a number of years.Non-current assets include investments，property，plant and equipment，intangible assets，and other non-current assets.
Current liabilities are obligations the liquidation of which is reasonably expected to require the use of current assets，or the creation of other current obligations.Common current liabilities are obligations arising from the acquisition of goods and services entering the operating cycle，such as accounts payable，short-term notes payable，wages payable，taxes payable.Collections of money in advance for the future delivery of goods or performance or services are accrued current liabilities.The current maturity of long-term liabilities is also classified as current liabilities.
Non-current liabilities include obligations not requiring the use of current funds for their retirement，such as long-term borrowings，bonds，mortgages.
In a corporation，the net assets are referred to as stockholders' equity.In presenting the statement of financial position，a distinction is made between the equity originating from the stock-holders' investments，referred to as share capitals（or contributed capitals），and the equity originating from earnings，referred to as retained earnings.
In case of a sole proprietorship，the net assets are referred to as owners' equity.It is reported by means of a single capital account.In case of a partnership，capital accounts are established for each partner.
The format of statement of financial position is not presently specified by IAS 1.In general，the two types of formats are the report form and the account form.In the report form the statement of financial position continues line by line from the top to bottom as Table 3-1.
Table 3-1
In the account form the statement of financial position appears in a balancing concept with assets on the left，liabilities and stockholders' equity on the right as Table 3-2.
Table 3-2
IASB gives an illustrative statement of financial position as the following with the assets of longer useful lives listed first as Table 3-3.The statement of financial position of Apple Inc.in the“More Knowledge”section of this chapter，illustrates current items listed first.
Table 3-3 XYZ Group-Statement of Financial Position as at 31 December 20×7
（continued）
IASB requires an entity to present a single statement of comprehensive income，or two statements：a statement displaying components of profit or loss（separate statement of profit or loss）and a second statement beginning with profit or loss and displaying components of other comprehensive income（statement of comprehensive income）.
Table 3-4 illustrates the presentation of comprehensive income in one statement.
Table 3-4 XYZ Group-Statement of Comprehensive Income for the Year Ended 31 December 20×7
IAS 1 requires that“an entity shall present an analysis of expenses using a classification based on either the nature of expenses or their function within the entity，whichever provides information that is reliable and more relevant”.（IAS 1，par.99）
An example of a classification using the nature of expense method is as Table 3-5.
Table 3-5
An example of a classification using the function of expense method is as Table 3-6.
Table 3-6
Traditionally，profit or loss has been presented in either a single-step form or a multiple-step form.With the single-step form，all revenues and gains are placed first on the income statement，followed by all expenses and losses.The difference between total revenues and gains and total expenses and losses represents net income.With the multiple-step form，the statement of comprehensive income is divided into separate sections，and subtotals are reported that reflect different levels of profitability.The statement of comprehensive income of Apple Inc.，in the “More Knowledge”section，illustrates a multiple-step format.
IAS 1 identifies the major information an entity shall present on the face of the statement of changes in equity as follows：
（1）total comprehensive income for the period，showing separately the total amounts attributable to owners of the parent and to non-controlling interests；
（2）for each component of equity，the effects of retrospective application or retrospective restatement recognized in accordance；and
（3）for each component of equity，a reconciliation between the carrying amount at the beginning and the end of the period，separately disclosing changes resulting from：
（i）profit or loss；
（ii）other comprehensive income；and
（iii）transactions with owners in their capacity as owners，showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.
Other items an entity shall present，either on the face of the statement of changes in equity or in the notes，are as follows：
（1）an analysis of other comprehensive income by item for each component of equity；and
（2）the amount of dividends recognized as distributions to owners during the period，and the related amount of dividends per share.
Table 3-7 is an example of a statement of changes in equity.
Table 3-7 XYZ Group-Statement of Changes in Equity for the Year Ended 31 December 20×7
The statement of cash flows reveals how an entity generated and spent cash during a given accounting period.The accounting period covered by a statement of cash flows is the same period as that covered by the statement of comprehensive income.When decision-makers review a company's statement of cash flows，the question foremost in their minds is：“How do the company's cash flows from its profit-oriented activities compare to its net income？” Successful companies should，over the long run，generate the majority of their cash from their operating activities.
The statement of cash flows begins with a summary of the cash inflows and outflows from three major types of activities engaged in by entities：operating，investing，and financing.The final section of the statement reconciles an entity's cash balance at the beginning of a period to its cash balance at the end of that period.The ending cash balance is also found on the statement of financial position along with the other assets.
The statement of cash flows，under international standards，includes transactions in cash equivalents as well as cash.Cash includes cash on hand and demand deposits with banks or other financial institutions.Cash equivalents are short-term highly liquid investments that are（1）readily convertible to known amounts of cash；and（2）so near to their maturity（original maturity of three months or less）that they present insignificant risk of changes in value.Original maturity in this case is determined from the date an investment is acquired by the reporting entity.For example，both a three-month treasury bill and a three-year treasury note purchased three months prior to maturity qualify as cash equivalents.However，if the treasury note was purchased three years ago，it would not qualify as cash equivalent during the last three months prior to its maturity.
The statement of cash flows prepared in accordance with IAS 7 requires classification into three categories.
The primary investing activities are the purchase and sale of land，buildings，equipment，and other assets not generally held for resale.In addition，investing activities include the purchase and sale of financial instruments not intended for trading purposes，as well as the making and collecting of loans.
Financing activities include transactions and events whereby cash is obtained from or repaid to owners（equity financing）and creditors（debt financing）.Examples of financing activities are cash proceeds from issuing stock or bonds，payments to reacquire stock or to retire bonds and the payment of dividends.
Operating activities include all transactions that are not investing and financing activities.Operating activities are principal revenue-producing activities of an entity and include delivering or producing goods for sale and providing services.
The operating activities section of the statement of cash flows can be presented under the direct or the indirect method.
The direct method shows the items that affected cash flows and the magnitude of those cash flows.Cash received from，and cash paid to，specific sources are presented.An example of cash flows from operating activities—a classification using the direct method is as Table 3-8.
Table 3-8
The indirect method focuses on the differences between net operating results and cash flows.It begins with net income，which can be obtained directly from the statement of comprehensive income.Revenue and expense items not affecting cash are added or deducted to arrive at net cash provided by operating activities.For example，depreciation and amortization would be added back because these expenses reduce net income without affecting cash.Changes in the components of most current asset and current liability accounts are analyzed to determine the cash flows from operating activities.The statement of cash flows of Apple Inc.，in the“More Knowledge”section of this chapter，illustrates an indirect method.
account form 账户式
accounts payable 应付账款
accrued liability 应计负债
administrative expense 管理费用
amortization 摊销
available-for-sale security 可供出售的证券
bond 债券
borrowing 借款
comprehensive income 综合收益，又称为全面收益
cost of sales 销售成本
current asset 流动资产
current item 流动性项目
current liability 流动负债
（capital）reserve （资本）公积
depreciation 折旧
direct method 直接法
distribution cost 推销成本
finance cost 财务成本
financing activities 筹资活动
finished good 产成品
foreign currency translation adjustment 外币折算差额
goodwill 商誉
indirect method 间接法
intangible asset 无形资产
inventory 存货
investing activities 投资活动
investment 投资
multiple-step form 多步式
non-current asset（fixed asset） 非流动资产（固定资产）
notes 附注
notes payable 应付票据
operating activities 经营活动
operating cycle 经营周期
partnership 合伙
prepaid expense 预付费用
sole proprietorship 独资
property，plant and equipment 不动产、工厂与设备，即固定资产
raw material 原材料
receivable 应收账款
report form 报告式
reporting date 报告日
retained earnings 留存收益
share capital 股本
single-step form 单步式
taxes payable 应缴税款
treasury bill 一年以内的短期国债
treasury note 五年以内的中期国债
wages payable 应付工资
work in process 在产品
苹果公司2021年的报表
以下报表摘录自苹果公司（Apple Inc.）披露的2021年年度报告，限于篇幅略去了所有者权益变动表。附注是财务报表的必要部分，是理解财务报表所必需的，限于篇幅，此处也略去。
Apple Inc. Consolidated Statements of Operations
（continued）
Apple Inc. Consolidated Statements of Comprehensive Income
Apple Inc. Consolidated Balance Sheets
（continued）
Apple Inc. Consolidated Statements of Cash Flows
（continued）
资料来源：Apple Inc.官方网站。http://investor.apple.com/investor-relations/financial-information/default.aspx.
1.How does separating current assets from property，plant，and equipment in the statement of financial position help analysts？
2.Should available-for-sale securities always be reported as a current asset？Explain.
3.What is the objective of statement of changes in equity？
4.What is the purpose of statement of cash flows？How does it differ from a statement of financial position and statement of comprehensive income？
5.The net income for the year for Won Long，Inc. was $ 750 000，but the statement of cash flows reports that the cash provided by operating activities was $ 640 000. What might account for the difference？
6.Net income for the year for Jenkins，Inc. was $ 750 000，but the statement of cash flows reports that cash provided by operating activities was $ 860 000. What might account for the difference？
7.Differentiate between operating activities，investing activities，and financing activities.
Exercise 1
Presented below are the captions of Faulk Company's statement of financial position.
（a）Current assets.
（b）Investments.
（c）Property，plant，and equipment.
（d）Intangible assets.
（e）Other assets.
（f）Current liabilities.
（g）Non-current liabilities.
（h）Capital stock.
（i）Additional paid-in capital.
（j）Retained earnings.
Instructions
Indicate by letter how each of the following items would be classified.
1.Preferred stock.
2.Goodwill.
3.Wages payable.
4.Trade accounts payable.
5.Buildings.
6.Trading securities.
7.Current portion of long-term debt.
8.Premium on bonds payable.
9.Allowance for doubtful accounts.
10.Accounts receivable.
11.Cash surrender value of life insurance.
12.Notes payable（due next year）.
13.Office supplies.
14.Common stock.
15.Land.
16.Bond sinking fund.
17.Merchandise inventory.
18.Prepaid insurance.
19.Bonds payable.
20.Taxes payable.
Exercise 2
Assume that Denis Saved Inc. has the following accounts at the end of the current year.
1.Common Stock.
2.Discount on Bonds Payable.
3.Treasury Stock（at cost）.
4.Notes Payable——Short-term.5. Raw Materials.
6.Preferred Stock Investments—Long-term.
7.Unearned Rent Revenue.
8.Work in Process.
9.Copyrights.
10.Buildings.
11.Notes Receivable——Short-term.
12.Cash.
13.Accrued Salaries Payable.
14.Accumulated Depreciation—Buildings.
15.Cash Restricted for Plant Expansion.
16.Land Held for Future Plant Site.
17.Allowance for Doubtful Accounts—Accounts Receivable.
18.Retained Earnings.
19.Premium on Common Stock.
20.Unearned Subscriptions Revenue.
21.Receivables—Officers（due in one year）.
22.Finished Goods.
23.Accounts Receivable.
24.Bonds Payable（due in 4 years）.
Instructions
Prepare a classified statement of financial position in good form.（No monetary amounts are necessary.）
Exercise 3
Turner Corporation had net sales of $ 2 400 000 and interest revenue of $ 31 000 during 20×5. Expenses for 20×5 were：cost of goods sold $ 1 250 000；administrative expenses $ 212 000；selling expenses $ 280 000；interest expense $ 45 000. Turner's tax rate is 30%. The corporation had 100 000 shares of common stock authorized and 70 000 shares issued and outstanding during 20×5.
Instructions
Prepare a single-step statement of comprehensive income and a multiple-step statement of comprehensive income for the year ended December 31，20×5.
Exercise 4
The major classifications of activities reported in the statement of cash flows are operating，investing，and financing.
The transactions are as follows.
（a）Issuance of capital stock.
（b）Purchase of land and building.
（c）Redemption of bonds.
（d）Sale of equipment.
（e）Depreciation of machinery.
（f）Amortization of patent.
（g）Issuance of bonds for plant assets.
（h）Payment of cash dividends.
（i）Exchange of furniture for office equipment.
（j）Purchase of treasury stock.
（k）Loss on sale of equipment.
（l）Increase in accounts receivable during the year.
（m）Decrease in accounts payable during the year.
Instructions
Classify each of the transactions listed above as：
1.Operating activity—add to net income.
2.Operating activity—deduct from net income.
3.Investing activity.
4.Financing activity.
5.Reported as significant non-cash activity.
Exercise 5
Ges Company reported 20×5 net income of $ 151 000. During 20×5，accounts receivable increased by $ 13 000 and accounts payable increased by $ 9 500. Depreciation expense was $ 39 000.
Instructions
Prepare the cash flows from operating activities section of the statement of cash flows.
Exercise 6
York Perez Corporation engaged in the following cash transactions during 20×5.
Sale of land and building $ 181 000
Purchase of treasury stock 40 000
Purchase of land 37 000
Payment of cash dividend 85 000
Purchase of equipment 53 000
Issuance of common stock 147 000
Retirement of bonds 100 000
Instructions
1.Compute the net cash provided（used）by investing activities.
2.Compute the net cash used（provided）by financing activities.