Topic 2:

Chapter 2
Basic Financial
Statements
Topic 2: Chapter 2
Learning Objectives
 Basic Financial Statements
(1) Introduction to Financial Statements:
Statement of Financial Position (Balance
Sheet); Income Statement; Statement of
Cash flow
(2) Overview of Accounting Concepts
(3) Accounting Equation
(4) Assets, Liabilities, Owners’ Equity
(5) Business Transaction
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Financial Statements
 A financial statement is simply a declaration of
what is believed to be true about an
enterprise, communicated in terms of a
monetary unit, such as the dollar.
 When accountants prepare financial statements,
they are describing in financial terms certain
attributes of the enterprise that they believe
fairly represent its financial activities.

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2-2 2-4
2-3 2-5
2-4 2-6
2-5 2-7
Simplified Financial Statement
Statement of Financial Position (Balance Sheet)

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 Simplified Financial Statement
Income
Statement

Statement of
Cash Flows

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 A Starting Point:
Statement of Financial Position
Fortune Travel Agency
Statement of Financial Position
31 December 2009
Assets Liabilities & Equity
Land $ 100,000 Liabilities:
Building 90,000 Notes payable $ 41,000
Office equipment 15,000 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Notes receivable 10,000 Total liabilities $ 80,000
Accounts receivable 60,500 Equity:
Cash 22,500 Share capital 150,000
Retained earnings 70,000
Total $ 300,000 Total $ 300,000

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Features of the Balance Sheet
1. Heading
a. Names of the business
b. Name of the financial statement
c. Date
2. Assets: Generally listed in order of expected
liquidity beginning with cash.
3. Liabilities: Listed on the other side of the
balance sheet before equity.
4. Equity: Divided into the categories of share
capital and retained earnings.
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The Concept of the Business Entity (企業主體)

For accounting purposes,

the activities of the entity
are separate from the
personal activities of its
Vagabond
owners.
Travel Agency

 This concept is called the entity principle.

 Business entity only records items related to the operation of
the business. Owner’s personal transactions/assets are not
recorded in the business financial statement.
 Therefore, we do not have to worry that the financial information
of the owner is mixed with the financial information of the
business.
 If they are not separate, the resulting financial statements
would fail to describe clearly the financial activities of the
company.
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Assets (資產)
Assets have three basic characteristics:
1. Economic resources
2. Owned by the business
3. Expected to benefit future operations*

*In most cases, the benefit to future operations

comes in the form of positive future cash flows.

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 Assets (資產)
Fortune Travel Agency
Statement of Financial Position
31 December 2009
Assets Liabilities & Equity
Land $ 100,000 Liabilities:
Building 90,000 Notes payable $ 41,000
Office equipment 15,000 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Notes receivable 10,000 Total liabilities $ 80,000
Accounts receivable 60,500 Equity:
Cash 22,500 Share capital 150,000
Retained earnings 70,000
Total $ 300,000 Total $ 300,000

Assets are resources that are controlled by the business and are
expected to have future economic benefits flowed to the business.

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Liabilities (負債)
Liabilities:
 Financial obligations or debts.
 Represent negative future cash flows.
 The person or organization to whom the debt is
owed is called a creditor.
 Usually listed on the Statement of Financial
Position (balance sheet) in the order in which
they are expected to be repaid.
 Represents claims against the borrower’s
assets.
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 Liabilities (負債)
Fortune Travel Agency
Statement of Financial Position
31 December 2009
Assets Liabilities & Equity
Land $100,000 Liabilities:
Building 90,000 Notes payable $ 41,000
Office equipment 15,000 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Notes receivable 10,000 Total liabilities $ 80,000
Accounts receivable 60,500 Equity:
Cash 22,500 Share capital 150,000
Retained earnings 70,000
Total $300,000 Total $300,000

Liabilities
• are debts that represent negative future cash flows for the enterprise.
• represent the claims of creditors on an entity’s assets.

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Owners’ Equity (所有者權益 或股東權益)

Equity:
 Represents the owners’ claims on the assets of
the business.
 Indicates a residual amount as creditors have
legal priority over owners.
 Entitles owners to the residual assets once
creditors have been paid in full.
 Always equal to total assets minus total
liabilities.

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 Owners’ Equity (所有者權益 或股東權益)
Fortune Travel Agency
Statement of Financial Position
31 December 2009
Assets Liabilities & Equity
Land $100,000 Liabilities:
Building 90,000 Notes payable $ 41,000
Office equipment 15,000 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Notes receivable 10,000 Total liabilities $ 80,000
Accounts receivable 60,500 Equity:
Cash 22,500 Share capital 150,000
Retained earnings 70,000
Total $300,000 Total $300,000
Equity represents the owners’ claims on the assets of the business.
It includes investments by owners and earnings retained by the
business.

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Increases in Equity
The equity in a business comes from two
primary sources:
1. Investments of cash or other assets by owners.
2. Earnings from profitable operation of the
business.

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Decreases in Equity
Decreases in equity also are caused in
two ways:
1. Payments of cash or transfers of other assets to
owners.
2. Losses from unprofitable operation of the
business.

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 The Accounting Equation
(Statement of Financial Position is a detailed expression of the accounting equation)

Fortune Travel Agency

Statement of Financial Position
31 December 2009
Assets Liabilities & Equity
Land $100,000 Liabilities:
Building 90,000 Notes payable $ 41,000
Office equipment 15,000 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Notes receivable 10,000 Total liabilities $ 80,000
Accounts receivable 60,500 Equity:
Cash 22,500 Share capital 150,000
Retained earnings 70,000
Total $300,000 Total $300,000
Assets = Liabilities + Equity
$300,000 = $80,000 + $220,000
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 Let’s analyze
transactions for
JJ’s Lawn Care Service
and look at how specific
business transactions
impact the basic
financial statement .

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 Transaction (交易 ) Analysis
Assets = Liabilities + Equity

Steps to analyze a transaction

Each transaction must at least have 2 effects on the equation.
Decide what accounts** are affected by the transaction.
Decide what elements they belong to (assets, liabilities, owners’ equity,
revenue, expenses).
Determine if the transaction will increase or decrease the account.
The accounting equation MUST remain in balance after each transaction.

(**An account (帳户) is a record of increases and decreases in a specific asset,

liability, equity, revenue, or expense item.
Each element of the Accounting Equation contains smaller elements called
accounts.)

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(1) On 1 May, Jill Jones and her family invested $8,000 in
JJ’s Lawn Care Service and received 800 shares of the
company.

JJ's Lawn Care Service

Statement of Financial Position
1 May 2009
Assets Equity
Cash $ 8,000 Share capital $ 8,000

Let’s see how the statement of financial position would look

immediately after this transaction

Total $ 8,000 Total $ 8,000

Note: You can make the analysis easier if the first question you ask is
whether cash is affected.
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(2) On 2 May, JJ’s purchased a riding
lawn mower for $2,500 cash.

Assets = Liabilities + Equity

Accounts Tools & Notes Accounts Share Retained
Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $8,000 = $8,000
May-02 -$2,500 $2,500 =
New Bal. $5,500 $2,500 = $8,000

$8,000 $8,000

 In this transaction, we are exchanging one asset (cash) for another

(riding lawn mower).
 Whenever a transaction affects only one side of the accounting
equation, total assets, total liabilities and equity remain unchanged.
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 (3) On 8 May, JJ’s purchased a $15,000 truck.
JJ’s paid $2,000 down in cash and issued a note
payable for the remaining $13,000.

Accounts Tools & Notes Accounts Share Retained

Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $5,500 $2,500 = $8,000
May-08 -$2,000 $15,000 = $13,000
New Bal. $3,500 $2,500 $15,000 = $13,000 $8,000

$21,000 $21,000

 There was a net increase by $13,000 in both sides of the

equation.
 The accounting equation is still in balance.

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 (4) On 11 May, JJ’s purchased some repair
parts for $300 on account .

Assets = Liabilities + Equity

Accounts Tools & Notes Accounts Share Retained
Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $3,500 $2,500 $15,000 = $13,000 $8,000
May-08
May-11 $300 = $300
New Bal. $3,500 $2,800 $15,000 = $13,000 $300 $8,000

$21,300 $21,300

Remember, in business it is quite common for business to purchase

something now, and pay for it later.

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 (5) Jill realized she had purchased more repair parts
than needed.
On 18 May, JJ’s was able to sell half of the repair parts to ABC
Lawns ( customer ) for $150, a price equal to JJ’s cost. JJ’s will
receive the cash within 30 days.

Assets = Liabilities + Equity

Accounts Tools & Notes Accounts Share Retained
Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $3,500 $2,800 $15,000 = $13,000 $300 $8,000
May-08
May-18 $150 -$150 =
New Bal. $3,500 $150 $2,650 $15,000 = $13,000 $300 $8,000

$21,300 $21,300

Once again, we are exchanging one asset (repair parts) for another
(accounts receivable). There are no effect on the accounting equation.
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 (6) On 25 May, ABC Lawns pays JJ’s $75 as a partial
settlement of its accounts receivable.

Accounts Tools & Notes Accounts Share Retained

Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $3,500 $150 $2,650 $15,000 = $13,000 $300 $8,000
May-08
May-25 $75 -$75 =
New Bal. $3,575 $75 $2,650 $15,000 = $13,000 $300 $8,000

$21,300 $21,300

Once again, we are exchanging one asset (accounts receivable)

for another (cash). There are no effect on the accounting
equation.
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 (7) On 28 May, JJ’s pays $150 of its
accounts payable.

Accounts Tools & Notes Accounts Share Retained

Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $3,575 $75 $2,650 $15,000 = $13,000 $300 $8,000
May-08
May-28 -$150 = -$150
New Bal. $3,425 $75 $2,650 $15,000 = $13,000 $150 $8,000

$21,150 $21,150

 The cash account decreases by $150 and accounts payable also

decreases by $150.
 The total assets are now recorded at $21,150. Total liabilities plus
equity is equal to the same amount.
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 (8) On 29 May, JJ’s recorded lawn care services provided
during May of $750. All clients were paid in cash.

Accounts Tools & Notes Accounts Share Retained

Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $3,425 $75 $2,650 $15,000 = $13,000 $150 $8,000
May-08
May-29 $750 = $750
New Bal. $4,175 $75 $2,650 $15,000 = $13,000 $150 $8,000 $750

$21,900 $21,900

 The cash account increases by $750 and retained earnings

increases by the same amount.
 The monies received represent earnings of the company that have
been retained. The $750 represents revenue earned by the
business.

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 (9) On 31 May, JJ’s purchased gasoline for the
lawn mower and the truck for $50 cash.

Accounts Tools & Notes Accounts Share Retained

Cash + Receivable + Equipment + Truck = Payable + Payable + Capital + Earnings
Old Bal. $4,175 $75 $2,650 $15,000 = $13,000 $150 $8,000 $750
May-08
May-31 -$50 = -$50
New Bal. $4,125 $75 $2,650 $15,000 = $13,000 $150 $8,000 $700

$21,850 $21,850

 The cash account decreased by $50 and so did the retained earnings
of the company.
 JJ’s Lawn Care used $50 of its earnings to pay for the gasoline. The
$50 spent is an expense of the business.

Now, let’s review how JJ’s transactions affected the accounting equation.
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 Assets = Liabilities + Equity
Accts. Tools & Notes Accts. Share Retained
Cash + Rec. + Equip. + Truck = Payable + Pay. + Capital + Earnings
May 1 $ 8,000 $ 8,000
Balances $ 8,000 $ 8,000
May 2 (2,500) $ 2,500
Balances $ 5,500 $ 2,500 $ 8,000
May 8 (2,000) $ 15,000 $ 13,000
Balances $ 3,500 $ 2,500 $ 15,000 $ 13,000 $ 8,000
May 11 300 $ 300
Balances $ 3,500 $ 2,800 $ 15,000 $ 13,000 $ 300 $ 8,000
May 18 $ 150 (150)
Balances $ 3,500 $ 150 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000
May 25 75 (75)
Balances $ 3,575 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000
May 28 (150) (150)
Balances $ 3,425 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000
May 29 750 750
Balances $ 4,175 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 750
May 31 (50) (50)
Balances $ 4,125 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 700

**The Statement of Financial Position is just a snapshot (what the company

“looks like” at a specific date) of the results of past business transactions
that have been captured by the entity’s information system.
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 Let’s prepare the Income Statement and Statement of Cash Flows for
JJ’s Lawn Care Service for the month ending 31 May 2009.
Assets = Liabilities + Equity
Accts. Tools & Notes Accts. Share Retained
Cash + Rec. + Equip. + Truck = Payable + Pay. + Capital + Earnings
May 1 $ 8,000 $ 8,000
These transactions impact the Statement of Cash Flows.
Balances $ 8,000 $ 8,000
May 2 (2,500) $ 2,500
Balances $ 5,500 $ 2,500 $ 8,000
May 8 (2,000) $ 15,000 $ 13,000
Balances $ 3,500 $ 2,500 $ 15,000 $ 13,000 $ 8,000
May 11 300 $ 300
Balances $ 3,500 $ 2,800 $ 15,000 $ 13,000 $ 300 $ 8,000
May 18 $ 150 (150)
Balances $ 3,500 $ 150 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000
May 25 75 (75)
Balances $ 3,575 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000
May 28 (150) (150)
Balances $ 3,425 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000
May 29 750 750
Balances $ 4,175 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 750
May 31 (50) (50)
Balances $ 4,125 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 700

These transactions impact the Income Statement.

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Income Statement
The income statement is a summarization of the
company’s revenue and expense transactions for a
period of time.

Revenues
 Increases in the company’s assets from its
profit-directed activities.
 Result in positive cash flows.

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Income Statement (cont.)
Expenses
 Decreases in the company’s assets from its
profit-directed activities.
 Result in negative cash flows.

Profit is the difference between revenues and

expenses for a specified period of time.

Profit = Revenues − Expenses

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 JJ's Lawn Care Service
Income Statement
For the Month Ended 31 May 2009

Sales Revenue $ 750

Operating Expense:
Gasoline Expense 50
Profit $ 700
 The Income Statement summarized the company’s revenue
and expense transactions for a period of time.
 Profit = Revenue - Expenses
 Investments by and payments to the owners are not included
on the Income Statement.
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 JJ's Lawn Care Service
Statement of Cash Flows
For the Month Ended 31 May 2009
Cash flows from operating activities:
Cash received from revenue transactions $ 750
Cash paid for expenses (50)
Net cash from operating activities $ 700
Cash flows from investing activities:
Purchase of lawn mower $ (2,500)
Purchase of truck (2,000)
Collection for sale of repair parts 75
Payment for repair parts (150)
Net cash used by investing activities (4,575)
Cash flows from financing activities:
Investment by owners 8,000
Increase in cash for month $ 4,125
Cash balance, 1 May 2009 -
Cash balance, 31 May 2009 $ 4,125
 Show how much cash going out (spend) and coming in (receive).
 At the end whether the company has more cash coming in or going out.
 It is classified into 3 type of activities: Operating, Investing and Financing.
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Statement of Cash Flows
Classifies cash flows into three categories:
1. Operating activities: the cash effects of
revenue and expense transactions that are
included on the income statement.
2. Investing activities: the cash effects of
purchasing and selling assets, such as land and
buildings.
3. Financing activities: the cash effects of the
owners investing in the company and creditors
loaning money to the company and the
repayment of either or both.
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 JJ's Lawn Care Service
Statement of Cash Flows
For the Month Ended 31 May 2009
Cash flows from operating activities:
Cash received from revenue transactions $ 750
Cash paid for expenses (50)
Net cash from operating activities $ 700
Cash flows from investing activities:
Purchase of lawn mower $ (2,500)
Purchase of truck (2,000)
Collection for sale of repair parts 75
Payment for repair parts (150)
Net cash used by investing activities (4,575)
Cash flows from financing activities:
Investment by owners 8,000
Increase in cash for month $ 4,125
Cash balance, 1 May 2009 -
Cash balance, 31 May 2009 $ 4,125

Operating activities (經營業務) include the cash effects of revenue and

expense transactions (i.e. from a company's main business activities of
buying and selling merchandise, providing services, etc.)

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 JJ's Lawn Care Service
Statement of Cash Flows
For the Month Ended 31 May 2009
Cash flows from operating activities:
Cash received from revenue transactions $ 750
Cash paid for expenses (50)
Net cash from operating activities $ 700
Cash flows from investing activities:
Purchase of lawn mower $ (2,500)
Purchase of truck (2,000)
Collection for sale of repair parts 75
Payment for repair parts (150)
Net cash used by investing activities (4,575)
Cash flows from financing activities:
Investment by owners 8,000
Increase in cash for month $ 4,125
Cash balance, 1 May 2009 -
Cash balance, 31 May 2009 $ 4,125

Investing activities (投資業務) include the cash effects of purchasing

and selling assets.
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 JJ's Lawn Care Service
Statement of Cash Flows
For the Month Ended 31 May 2009
Cash flows from operating activities:
Cash received from revenue transactions $ 750
Cash paid for expenses (50)
Net cash from operating activities $ 700
Cash flows from investing activities:
Purchase of lawn mower $ (2,500)
Purchase of truck (2,000)
Collection for sale of repair parts 75
Payment for repair parts (150)
Net cash used by investing activities (4,575)
Cash flows from financing activities:
Investment by owners 8,000
Increase in cash for month $ 4,125
Cash balance, 1 May 2009 -
Cash balance, 31 May 2009 $ 4,125

Financing activities (融資業務) include the cash effects of transactions with

the owners investing in the company and creditors loaning money to the
company and the repayment of either or both.
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 Now, let’s prepare the Statement of Financial Position for
JJ’s Lawn Care Service for May 31, 2009.
Assets = Liabilities + Equity
Accts. Tools & Notes Accts. Share Retained
Cash + Rec. + Equip. + Truck = Payable + Pay. + Capital + Earnings
May 1 $ 8,000 $ 8,000
Balances $ 8,000 $ 8,000
May 2 (2,500) $ 2,500
Balances $ 5,500 $ 2,500 $ 8,000
May 8 (2,000) $ 15,000 $ 13,000
Balances $ 3,500 $ 2,500 $ 15,000 $ 13,000 $ 8,000 These
May 11 300 $ 300 balances
will
Balances $ 3,500 $ 2,800 $ 15,000 $ 13,000 $ 300 $ 8,000 appear on
May 18 $ 150 (150) the
Balances $ 3,500 $ 150 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000 Statement
May 25 75 (75) of
Balances $ 3,575 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000 Financial
Position
May 28 (150) (150)
Balances $ 3,425 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000
May 29 750 750
Balances $ 4,175 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 750
May 31 (50) (50)
Balances $ 4,125 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 700

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 DO IT!

JJ's Lawn Care Service

Statement of Financial Position
31 May 2009
Assets Liabilities
Tools & equipment $ 2,650 Notes payable $ 13,000
Truck 15,000 Accounts payable 150
Account receivable 75 Equity
Cash 4,125 Share capital 8,000
Retained earnings 700
Total assets $ 21,850 Total liabilities & equity $ 21,850

Assets = Liabilities + Equity

$21,850 = $13,150 + $8,700
$21,850 = $21,850
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Relationships Among Financial Statements
Date at Date at
beginning of end of
period period
Time
Statement of Statement of
Financial Position Financial Position

Income Statement
Statement of Cash Flows

 All the financial statements are interrelated.

 We can start with the statement of financial position at the beginning
of an accounting period, analyze the income and cash flows of the
company, and arrive at the ending balances that will appear on the
statement of financial position.

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 Financial Statement Articulation
JJ's Lawn Care Service
Statement of Cash Flows
For the Month Ended 31 May 2013
Cash flows from operating activities: JJ's Lawn Care Service
Cash received from revenue transactions $ 750 Income Statement
Cash paid for expenses (50) For the Month Ended 31 May 2013
Net cash from operating activities $ 700
Cash flows from investing activities:
Purchase of lawn mower $ (2,500) Sales Revenue $ 750
Purchase of truck (2,000) Operating Expense:
Collection for sale of repair parts 75 Gasoline Expense 50
Payment for repair parts (150) Profit $ 700
Net cash used by investing activities (4,575)
Cash flows from financing activities:
Investment by owners 8,000 JJ's Lawn Care Service
Increase in cash for month $ 4,125 Statement of Financial Position
Cash balance, 1 May 2009 -
31 May 2013
Cash balance, 31 May 2009 $ 4,125
Assets Liabilities
Tools & equipment $ 2,650 Notes payable $ 13,000
Truck 15,000 Accounts payable 150
Account receivable 75 Equity
Cash 4,125 Share capital 8,000
Retained earnings 700
Total assets $ 21,850 Total liabilities & equity $ 21,850

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 Financial Reporting and Financial Statements
(p58)

Financial statements are

just one source of
financial accounting
Income
information. Statement
Statement
of
Statement Financial
of Cash Position
Flows

Other Information:
• Industry
• Competitors
• National economy
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Forms 形式 of Business Organization (p61)

(獨資企業)
(合伙企業) (公司)
Sole
Proprietorships Partnerships Corporations

Generally accepted accounting principles can be applied to the financial

statements of all three forms of organization.

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Comparisons of Characteristics of Forms of Business Organization
Characteristics Sole Proprietorship Partnership Corporation
Sole owner Unlimited ownership
Ownership Two or more owners
(owner is often manager) (Ownership divided into
(owner is often manager)
shares and owned by many
persons who called
shareholders
Much more legal
No special legal No special legal requirements.
Legal requirements requirements must be met to requirements must be met to It is an artificial person
start a sole proprietorship start a partnership created by law that is
separate from its owners.

Legal distinctions None. The business and its None. The business and its Legal separation between
between owner and owner are not regarded as owner are not regarded as owners and business
business separate entities. separate entities.
Liability Unlimited* Unlimited but shared Limited**
among partners
Ability to raise capital Very limited Limited Nearly unlimited
*The owner is personally liable for the debts of the business. If the business encounters financial difficulties, creditors
can force the owner to sell his or her personal assets to pay the business debts.

** These owners can lose no more than the amounts they have invested in the business.

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Reporting Ownership Equity in the
Statement of Financial Position
Ow ner's equity:
Sole
Proprietorships Jill Jones, capital $ 8,000

Partners' equity
Jill Jones, capital $ 4,000
Partnerships
Bill Jones, capital 4,000
Total partners' equity $ 8,000

Equity
Share capital $ 7,000
Corporations
Retained earnings 1,000
Total shareholders' equity $ 8,000
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Adequate Disclosure (披露)
 Adequate disclosure means that users of
financial statements are informed of all
information necessary for the proper
interpretation of the statements.
 Disclosures are made in the body of the
financial statements and in the notes
accompanying the statements.
 It is common for the notes to the financial
statements to be longer than the statements
themselves.

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Adequate Disclosure (cont.) (披露)
Items that may require disclosure include
but are not limited to:
 Significant accounting policies
 Subsequent events
 Unsettled lawsuits
 Contractual commitments
 Assets pledged as collateral

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The Need for Adequate Disclosure, p63 (披露)
Adequate disclosure means
that users of financial
Statement of Financial statements are informed of all
Position information necessary for the
proper interpretation of the
Income Statement statements.

Statement of Cash Flows

Notes to the financial
statements
(財務報表附註)
often provide facts
necessary for the
proper interpretation
of the statements.

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 Readings and Home Exercises
(A) Readings – Chapter 2 Williams
(B) Textbook Exercises – p80 to p82
 Problem 2.3B, Problem 2.5B & Problem 2.7B
(regarding part b, just prepared a statement of
financial position at 5 July)
 Solutions are available on SOUL mother page.

**Practice makes perfect

End of Chapter 2
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