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  • Hi, Else here.

  • And in this video, we'll start exploring financial statements,

  • what they look like, and how they're interconnected.

  • We'll be using ASPE, Accounting Standards

  • for Private Enterprises, to produce our statements.

  • Why are financial statements necessary?

  • Remember that external stakeholders, mainly investors,

  • lenders, and other creditors, have

  • to make decisions about resource allocations--

  • where to put their money.

  • They use financial statements to answer questions

  • that they may have about a business.

  • From the video on business organization,

  • we know that corporations can be either public or private.

  • Public corporations must follow IFRS.

  • Private corporations can follow either IFRS or ASPE.

  • A private corporation that follows ASPE

  • will produce the following financial statements-- income

  • statement, statement if retained earnings,

  • balance sheet, and the statement of cash flows.

  • Corporations who follow IFRS, whether public or private,

  • must produce the following statements-- income statement,

  • statement of comprehensive income,

  • statement of changes in equity, statement

  • of financial position, and finally, the statement of cash

  • flows.

  • If you wish to learn more about these statements,

  • go to my video on IFRS financial statements.

  • In these videos, we'll only be covering ASPE.

  • Statements must be completed in a specific order

  • and we'll start with the income statement.

  • An income statement reports the results

  • of a businesses day-to-day operations-- the revenues,

  • less the expenses incurred to generate that revenue,

  • to obtain a profit figure called net income.

  • The income statement measures the business's performance

  • within a period of time either annually, quarterly,

  • or monthly.

  • To better understand the income statement,

  • we have to understand the two main elements-- revenues

  • and expenses.

  • Revenues are the income that a business earns.

  • There are only two ways to earn revenue.

  • Businesses either provide a service or a good.

  • The key to revenue is that it must be earned.

  • What does that mean?

  • It means that the business has done their job--

  • past tense.

  • For example, if a lawn care business

  • plans to mow a customer's lawn tomorrow,

  • it has not earned revenue today, because they have not

  • done their job as yet.

  • After they've finished mowing the customer's lawn,

  • they have earned their revenue.

  • If a retail store plans to sell a product to a customer

  • tomorrow, revenue is not earned because, again, the business

  • has not as yet done their job.

  • Revenues can only be recognized when the business has

  • finished the job, provided the service, or delivered the good.

  • Notice the past tense--

  • that's very important with regards to the element revenue.

  • To summarize, revenue is income earned

  • through the day-to-day activities of a business

  • when a service or good is provided.

  • Revenue-- earned by providing services or goods.

  • Expenses or the cost of the resources

  • that have been used, consumed, or incurred to help

  • generate revenue.

  • Expenses are best described through an example.

  • If you use gas in a lawnmower when you move a customer's

  • lawn, then the gas that was consumed during the moving

  • of the lawn is an expense--

  • a cost to earn the revenue.

  • Why?

  • Because the gas was consumed in order to help

  • generate service revenue.

  • Note that the concept of used, consumed, or incurred

  • is important, but so is the fact that these things must

  • have happened in order to earn revenue.

  • Costs or expenses must be matched to the revenue

  • they helped to generate.

  • Expenses-- cost of what is used, consumed, or incurred to help

  • generate revenue.

  • Now that you understand the elements

  • that make up the income statement,

  • let's look at the format.

  • The format of an income statement is important.

  • Note that the heading must always

  • include the company name, the title

  • of the financial statement, and the time period covered.

  • Then revenues are listed first.

  • If there are multiple revenues, you

  • must list each different type of revenue

  • individually, and then show a subtotal called total revenues.

  • Is there a correct order for revenues?

  • Generally, they're placed in the order of magnitude-- meaning

  • from the highest amount to the lowest.

  • Why?

  • Because remember the purpose of financial reporting--

  • provide information for external users

  • to make resource allocation decisions.

  • Therefore, highlighting the larger sources of revenue

  • first help to make the information more understandable

  • and increases clarity.

  • Expenses are listed next with the heading called

  • operating expenses.

  • The order of expenses, similar to revenues,

  • are from the largest to the smallest.

  • After listing all the expenses, this statement

  • provides a total of all the expenses,

  • excluding income tax expense.

  • Next is the subtotal-- income before income tax expense

  • calculated as total revenue minus total expenses.

  • Then, income tax expense is a separate expense item

  • before listing a final net income amount.

  • Often, textbooks show income tax expense in the same listing

  • as operating expenses.

  • However, this is incorrect.

  • Operating expenses are the costs of operating the business

  • and are controllable, for the most part, by the business.

  • Income tax expense is prescribed by this CRA--

  • Canada Revenue Agency-- and is not at all controllable.

  • As a consequence, income tax expense

  • must be listed separately.

  • What happens if expenses are greater than revenues?

  • Then a net loss amount is provided that the bottom

  • of the income statement.

  • The statement we have developed here

  • is called the single step income statement.

  • We'll be covering a multiple step income

  • statement in a future video.

  • Remember to pause the video to determine

  • your answer to this check your understanding

  • question about the uses of the income statement.

  • Investors are interested in a business's past performance

  • because it helps them.

  • The answer is not A--

  • determining the amount of debt a business currently

  • has is answered by reviewing the balance sheet.

  • The answer is not B either--

  • as the current value of a businesses property, plant,

  • and equipment is not available on any financial statement

  • that is produced under ASPE.

  • The answer is not D either.

  • Determining if a business is profitable enough

  • to repay its debt is what lenders and creditors

  • will use the income statement for, not investors.

  • The correct answer is C as investors

  • are interested in determining the future profitability

  • of the business.

  • Why is this?

  • Because it will help investors determine

  • if they will get the return on their investment

  • that they want in the future.

  • Investors also use the income statement

  • to determine if the business will be in a position

  • to pay dividends.

  • Lenders use the income statement to help them determine

  • if they want to fund a business with loans

  • and if the business will be in a position to repay the loan

  • plus interest in the future.

  • Other creditors use this statement

  • to figure out if the business will be profitable enough

  • to repay their debts as they come due.

  • The long-term survival of any business

  • depends on its ability to produce revenues that are

  • greater than their expenses.

  • Profit allows a business to fund their financing activities

  • by paying dividends to shareholders and interest

  • to lenders.

  • It also allows the business to pay for investing activities,

  • like buying new equipment.

  • Investors and creditors base their decisions

  • on their beliefs about a business's future performance.

  • Income statements, which show past performance,

  • give stakeholders information to help them make predictions

  • about future profitability.

  • The income statement is a statement

  • that is connected to two other financial statements.

  • The net income or net loss from the income statement

  • is used in both the statement of retained earnings

  • and the statement of cash flows under the indirect method.

  • Since the net income from the income statement

  • is used in other statements, it's

  • always the first financial statement completed.

  • The next statement produced is the statement

  • of retained earnings.

  • We'll be covering that statement in our next video.

Hi, Else here.

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A2 初級

財務諸表-講義4 損益計算書(ASPE (Financial statements - Lecture 4 Income Statement (ASPE))

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    陳虹如 に公開 2021 年 01 月 14 日
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