International Financial Statement Analysis

CHAPTER 2

FINANCIAL REPORTING MECHANICS

Thomas R. Robinson, CFA CFA Institute Charlottesville, Virginia

 

Hennie van Greuning, CFA World Bank Washington, DC

 

Elaine Henry, CFA University of Miami Miami, Florida

 

Michael A. Broihahn, CFA Barry University Miami, Florida

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• Identify the groups (operating, investing, and financing activities) into which business activities are categorized for financial reporting purposes and classify any business activity in the appropriate group.

• Explain the relationship of financial statement elements and accounts, and classify accounts into the financial statement elements.

• Explain the accounting equation in its basic and expanded forms.

• Explain the process of recording business transactions using an accounting system based on the accounting equations.

• Explain the need for accruals and other adjustments in preparing financial statements.

• Prepare financial statements given account balances and/or other elements in the relevant accounting equation, and explain the relationships among the income statement, balance sheet, statement of cash flows, and statement of owners’ equity.

• Describe the flow of information in an accounting system.

• Explain the use of the results of the accounting process in security analysis.

1. INTRODUCTION

The financial statements of a company are end products of a process for recording transactions of the company related to operations, ...