Financial Reporting V.1-3

Proprietorship

- 1 Person owns company - Company & owner connected --> company loss = personal loss

Types of Accruals

- Accrued revenues (TA) - Accrued Expenses (TP)

Adjusted Trial Balance - Balance Sheet

- Assets - Liabilities - Stockholder's Equity

Why do companies issue no-par stock?

- Avoid contingent liability - Avoid the confusion over the relationship between the par value and fair value

No-par value stock

- Capital stock that has not been assigned a value in the corporate charter - Exact amount received is creited to common stock or preferred stock (no premium)

Types of financial reporting - Depending on accounting practice

- Cash flow basis - Accrual basis

Accounting Standards - Future Trends

- Convergent, not divergent - At least 75% of Swiss GAAP, IFRS and US GAAP are the same

Preferred stock

- Created by special contracts - Stockholders sacrifice some rights in return for other rights

Types of Events/Transactions - External vs. Internal

- External --> between a business and its environment - Internal --> event occuring entirely within a business

Types of financial reporting - Depending on the purpose of reporting

- External reporting - Internal reporting - Tax reporting

Partnership

- Few people own the company - Company & owner connected --> company loss = personal loss

Statement of Comprehensive Income - Components

- Income (shown in the income statement) - Other comprehensive income (included in the shareholders equity section of the balance sheet)

Publicly-listed firms must provide 5 major financial statements

- Income Statement - Statement of comprehensive income - Statement of changes in equity - Statement of financial position (= Balance sheet) - Statement of cash flows

Goals behind treasury shares

- Increase earnings per share and return on equity - Provide tax-efficient distributions of excess cash to shareholders - Provide shares for emplpyee compensation contracts - Rivals can't buy the shares - Make a market in the shares (low supply --> high price)

Usual switch in rights for preferred stock

- Lose right to vote for the management - Lose right to share in profits beyond the stated rate - Gain prior claim on earnings

Types of Shares

- Ordinary Shares ( Common Stock) - Preference shares (Preferred Stock)

Par value stock

- Par Value ≠ Fair Value - Par value often low - Common & Preferrence Sreflects excess over par value paid by stockholdershock reflect par value Share Premium reflects excess over par value paid by stockholders

Types of Prepayments

- Prepaid Expenses (TA) - Unearned Revenues (TP)

Step 6 - Preparing Financial Statement

- Prepared directly form the adjusted trial balance - Contains: - Balance Sheet - Income Statement - Statement of retained Earnings - Statement of Cash Flows

Adjusting Entries - Types of adjustment

- Prepayments - Accruals

Types of financial reporting - Depending on the type of company

- Proprietorship - Partnership - Corporations

Common Stock

- Represents basic ownership interest - Residual claimant that bears the ultimate risks of loss (you get whats left) - Neither dividends nor assets upon dissolutane are guaranteed - Control the management - Profit most if the company is successful

Step 4 - Adjusting Entries

- Revenues (from period in which they were earned) - Expenses (from period in which they are incurred) - Adjusting Entries needed to ensure that the revenue recognition and matching principles are followed

What goes into the equity section of a financial statement?

- Share Capital -Retained Earnings - less: Treasury Shares - maybe more

Rights carried by shares (if there aren't any restrictive provisions)

- Share proportionately in profits and losses - Share proportionately in management - Share proportionately in assets upon liquidation - Preemptive right --> share proportionately in new issues of shares of the same class

What accounting standard can a company whose shares are traded on the Domestic Standard of SIX follow in Switzerland?

- Swiss GAAP FER - IFRS - OR US GAAP

Costs of issuing shares

- Underwriting costs - Accounting and legal fees - Printing costs - Taxes

Trading a share for services, land, technology etc.

--> Record the value at the fair falue of the goods received or the fair value of the shares issued

Steps in the Accounting Cycle

1. Journalization 2. Posting 3. Trial Balance 4. Adjustment 5. Adjusted Trial Balance 6. Financial Statements 7. Closing entries 8. Post-closing trial balance 9. Reversing entries

Step 5 - Adjusted Trial Balance

Adjusted List of all the accounts and their balnces, to prove equality of debit and credit

Step 8 - Post-closing Trial Balance

Adjusted with dividends, revenues & expenses all at 0

Asset

Aktiven

Expense

Aufwand

Adjusted Trial Balance - Statement of Retained Earnings

Beginning Balance + Net Income - Dividends = Ending Balance

Step 1 - Journalizing

Chronological record of transactions into the General Journal

Accounts receivable

Debitoren

What accounts do we use to depreciate assets?

Depreciation expenses (Debit) and Accumulated Depreciaton (Credit)

Accounting Standards - Swiss GAAP Fer

Designed for smaller Swiss firms, easy to follow, low implementation cost

(Shareholders) Equity

Eigenkapital Contains: - Stock - Share premium - Retained earnings

Revenue

Ertrag

Examples for comprehensive income

Gains or losses in: - Foreign currency translation - Accounting for future contracts - Emplover's accounting for pensions - Accounting for certain investmemts - Shares who gained in worth

Step 7 - Closing Entries

Goals: - Reduce the balance of the income statement accounts (R&E) to zero - Transfer net income or loss to owner's equity (- Balance sheet accounts are not closed)

Credit

Haben --> right side of the account

Accounts payable

Kreditoren

Corporation

Limited liability --> Investors cant claim compensation upon liquidation

Step 3 - Trial Balance

List of each account and its balance, used to prove equality of debit and credit balances

Authorized Shares

Maximum number of shares a company can issue

Accounting Standards - IFRS

Most used worldwide by large multinational firms

Is Treasury Stock an asset of the company?

No!! It's a contra-equity account

If a company reissues the treasury shares at a higher/lower price, can they recognize the gain/loss in any equity transaction?

No!! (But in the Share Premium)

Issued Shares

Number of authorized shares that are sold to shareholders

Accounting Standards - U.S. GAAP

Oldest standard, most complex with dense regulation and stringent enforcement

Step 2 - Posting

Process of transferring amounts from the journal to the ledger (specific) accounts

Share Premium

Reflects excess over par value paid by stockholders

Adjusted Trial Balance - Income Statement

Revenues, Expenses, Net income

Outstanding shares

Shares of a company that have been issued but not bought yet

Treasury shares

Shares repurchased by the company

Account - Definition

Shows the effect of transactions on a given asset, liability, revenue or expense account

Debit

Soll --> left side of the account

Liability

Verbindlichkeit