Essay on CFA Level 1 Book page 110-122

Since the net income reported in the statement of cash flows is transferred from the profit and loss account which is the difference between revenue and expenditures all of two types;

Weygandt, J. J. (2009). Accounting principles. (10 ed., pp. 109-117). John Wiley & Sons, Inc.

The objective of financial reporting/statements is to provide information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of the entity’s management and for making economic decisions.

There are four types of basic financial statements. They are the balance sheet, income statement, statement of equity, and statement of cash flows. Each of these are taken into account as a source for the company and used for different reasons. Creditors, investors, and management all have different reasons for having more interests in the certain statements they choose to look at closer.

Financial statements most likely will consist of income statements, balance sheets, statements of retained earnings, and cash flow. Generally accepted accounting principles (GAAP) is the method of choice to maintain these records across domestic and international borders. Since these statements are regularly audited by government agencies or accounting firms to validate accuracy of these statements. Financial analysts utilize data to evaluate the performance and/or make predictions about the future of a business’s stock price. The three main financial statements are the balance sheet, the income statement, and the statement of cash flows.

29. In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peet’s Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.

One purpose of financial reporting is to provide information that is useful in making business and economic decisions for internal and external users. The measurement plays a vital role in preparing a reliable and fair report cause it determines how the report shows the entity’s financial position and performance.

The Income Statement - is necessary to calculate the profit generated by the company during a year or a quarter. It is also called profit and loss statement. Company’s gross profit can be identified by subtracting cost of goods sold from sales. To find net operating income (earnings before interest and taxes)

The income statement is a report that identifies revenues and expenses for a business over a specific period of time to determine net earnings or losses for that time period (U.S. Securities and Exchange Commission [SEC], 2007). To determine the net income of a business, gross revenue has to be adjusted based on the cost of producing those goods and services. Direct inputs such as raw materials and labor are known as cost of goods sold (Melicher & Norton, 2013). The gross income is further reduced by the costs of marketing, selling the product or service and depreciation of physical assets to determine the operating income. After accounting for interest expenses and taxes, the net income can be determined. Income statements are typically compiled on a quarterly and an annual basis (Melicher & Norton, 2013).

One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to

The objectives of financial reporting are a key element of financial accounting standard setting. Standard setters have identified financial accounting as providing valuation-relevant information and contracting-relevant information (Zeff, 2012). The Financial Accounting Standards Board (FASB) states that the general objective of financial reporting is to provide ‘information that is useful to represent any potential investors and creditors and other users in making rational investment, credit and similar decisions’ (FASB, 2008). It is then narrowed down into two sub-objectives; ‘information to help users in assessing the amounts, timing and uncertainty of prospective cash receipts’ (decision-usefulness) and ‘information

Over the years, annual reporting has undergone drastic changes. It is becoming increasingly important as the readers are not limited only within certain geographical boundary but expanding internationally. With globalization, public listed companies must ensure more transparency and more accurate information. This has led to publication of their reports on their websites making people all over the world easy access to their performance. Today not only financial reporting are becoming important part, but a company has to include non-financial reports as well. Yet, needless to say, interest for most stakeholders in the annual reports have always remained the financial section of the reports. Hence need for more comprehensive reporting arises.

According to the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 230 (ASC 230), cash flows are classified in the Statement of Cash Flows (SCF) as cash flows from operating, investing, and financing activities. ASC 230 replaced FASB Statement No 95 (SFAS-95). This paper will discuss certain problems in SFAS-95 that continue to exist. Certain related cash flows are classified differently because of inconsistencies and ambiguities in classification. Further, the indirect method is widely executed while the direct method discloses more cash flow information. This paper alerts users to make more informed assessments of cash flow information with regards to the subtotals from operating, investing, and financing activities. This paper also suggests the FASB require the direct method for reporting purposes to improve investors’ and creditors’ judgment accuracy. At the same time, this paper provides users ratios to assess the quality of income to make more informed decisions.

A Report on the Significance of the IASB’s Conceptual Framework and the Exposure Draft ‘Conceptual Framework for Financial Reporting – The Reporting Entity’

An income statement is a report that shows the all activities that happened during the accounting period in regards to the income and expenses of a business. The accounting period is typically 1 year, but it can also be tailored according to the company’s need. An income statement can be separated into three categories. The first category illustrates the gross profit of the business. It is where net sales (gross revenues minus returns and allowances) minus the cost of goods sold. The following one shows the operating income, which also equals to the net income before interest and taxes. It is derived from gross profit minus operating expenses. The last category displays the net income, meaning the profit that the business make. Net income is