BUSINESS FINANCIAL STATEMENTS GUIDE
Table of Contents
- Introduction
- Income Statement
- Balance Sheet
- Cash Flow Statement
- Statement of Changes in Equity
- Notes to Financial Statements
- Financial Analysis
- Compliance and Standards
- Appendices
Introduction
This comprehensive guide to business financial statements is designed to provide business owners, particularly minority and women business owners (MWBEs), small business owners seeking expansion capital, and first-time entrepreneurs, with a thorough understanding of financial reporting requirements and best practices. The information contained herein represents standard accounting practices as of [YEAR] and should be used in conjunction with professional accounting and legal advice tailored to your specific business circumstances.
Financial statements serve as the foundation for informed business decision-making, securing funding, demonstrating business viability to stakeholders, and ensuring regulatory compliance. This guide breaks down each component of standard business financial statements in clear, accessible language while maintaining the technical accuracy required for proper financial reporting.
Income Statement
1. Revenue Recognition
1.1 Definition and Scope
Revenue shall be recognized in accordance with applicable accounting standards (GAAP or IFRS) when the entity has satisfied its performance obligations by transferring promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
1.2 Revenue Sources Documentation
All revenue sources must be properly documented and categorized, including but not limited to:
a) Sale of goods
b) Provision of services
c) Usage fees from others using company assets
d) Interest, royalties, and dividends
e) Commission revenue
f) Subscription revenue
g) Grant income (where applicable)
h) Other income streams specific to the business
1.3 Revenue Recognition Timing
Revenue shall be recognized in the appropriate accounting period based on:
a) For goods: When control transfers to the customer
b) For services: As the service is performed and the customer simultaneously receives and consumes the benefits
c) For long-term contracts: Using either percentage-of-completion or completed contract method as appropriate under applicable accounting standards
1.4 Revenue Presentation
Revenue shall be presented as the gross amount received or receivable when the business acts as a principal, and as the net amount retained (commission or fee) when acting as an agent.
2. Cost of Goods Sold (COGS)
2.1 Definition and Scope
Cost of Goods Sold represents all direct costs attributable to the production of goods sold or services rendered by the business during the reporting period.
2.2 COGS Components
COGS shall include, but is not limited to:
a) Raw materials and direct inputs
b) Direct labor costs, including wages, benefits, and payroll taxes for production personnel
c) Manufacturing overhead directly attributable to production, including:
i. Factory rent and utilities
ii. Production equipment depreciation
iii. Production supervision
iv. Quality control costs
v. Maintenance and repairs of production equipment
d) For service businesses: Direct costs of service delivery
e) Freight-in and transportation costs related to acquiring inventory
f) Purchase returns and allowances (as reductions)
g) Purchase discounts (as reductions)
2.3 Inventory Valuation Methods
Inventory shall be valued using one of the following methods, applied consistently:
a) First-In, First-Out (FIFO)
b) Last-In, First-Out (LIFO) where permitted by applicable accounting standards
c) Weighted Average Cost
d) Specific Identification for high-value items
2.4 COGS Calculation
COGS shall be calculated using the formula:
Beginning Inventory + Purchases + Direct Production Costs - Ending Inventory = Cost of Goods Sold
3. Gross Profit Calculation
3.1 Definition and Formula
Gross Profit shall be calculated as Total Revenue minus Cost of Goods Sold.
3.2 Gross Margin Calculation
Gross Margin shall be calculated as Gross Profit divided by Total Revenue, expressed as a percentage.
3.3 Segmented Reporting
Where applicable, Gross Profit and Gross Margin shall be calculated and reported by:
a) Product line
b) Service category
c) Business segment
d) Geographic region
e) Other meaningful business divisions
3.4 Comparative Analysis
Gross Profit and Gross Margin shall be presented with comparative figures from at least one prior period of equal length to facilitate trend analysis.
4. Operating Expenses
4.1 Definition and Scope
Operating Expenses include all costs incurred in the normal course of business operations that are not directly attributable to the production of goods or delivery of services.
4.2 Operating Expense Categories
Operating Expenses shall be categorized and reported in detail, including but not limited to:
a) Selling expenses:
i. Sales salaries, commissions, and benefits
ii. Advertising and marketing expenses
iii. Travel and entertainment
iv. Sales office expenses
v. Shipping and delivery expenses
b) General and administrative expenses:
i. Executive and administrative salaries and benefits
ii. Office rent and utilities
iii. Office supplies and equipment
iv. Professional fees (legal, accounting, consulting)
v. Insurance premiums
vi. Licenses and permits
vii. Bank charges and fees
c) Research and development expenses
d) Technology and IT expenses
e) Training and development costs
f) Bad debt expense
4.3 Expense Recognition
Expenses shall be recognized in the period in which they are incurred, regardless of when payment is made, in accordance with the accrual basis of accounting.
4.4 Expense Allocation
Shared or indirect expenses shall be allocated to appropriate departments, products, or business segments using a reasonable and consistently applied allocation methodology.
5. Depreciation and Amortization
5.1 Depreciation of Tangible Assets
Depreciation of tangible fixed assets shall be:
a) Calculated using an appropriate method:
i. Straight-line method
ii. Declining balance method
iii. Units of production method
iv. Sum-of-the-years'-digits method
b) Based on:
i. Estimated useful life of the asset
ii. Estimated residual value
iii. Historical cost or revalued amount as appropriate
c) Recorded as an expense in the income statement
d) Accumulated in the balance sheet as a contra-asset account
5.2 Amortization of Intangible Assets
Amortization of intangible assets with finite useful lives shall be:
a) Calculated using an appropriate method, typically straight-line
b) Based on the estimated useful life or legal life, whichever is shorter
c) Recorded as an expense in the income statement
d) Accumulated in the balance sheet as a contra-asset account
5.3 Asset Classes and Useful Lives
Standard useful lives shall be established for classes of assets, including but not limited to:
a) Buildings: 20-40 years
b) Machinery and equipment: 5-15 years
c) Vehicles: 3-7 years
d) Computer equipment: 3-5 years
e) Furniture and fixtures: 5-10 years
f) Software: 3-5 years
g) Patents: Legal life or economic life, whichever is shorter
h) Trademarks: 5-15 years or indefinite life with annual impairment testing
5.4 Disclosure Requirements
Depreciation and amortization disclosures shall include:
a) Methods used
b) Useful lives or amortization rates
c) Total depreciation and amortization expense for the period
d) Reconciliation of beginning and ending accumulated depreciation and amortization
6. Interest Expense
6.1 Definition and Scope
Interest Expense represents the cost of borrowed funds used in the business during the reporting period.
6.2 Interest Expense Components
Interest Expense shall include:
a) Interest on short-term loans and lines of credit
b) Interest on long-term loans and mortgages
c) Interest on bonds and notes payable
d) Interest on capital leases
e) Amortization of debt issuance costs
f) Interest on late tax payments or other obligations
g) Interest component of defined benefit pension plans
6.3 Interest Capitalization
Interest incurred during the construction or development of qualifying assets shall be capitalized in accordance with applicable accounting standards rather than expensed.
6.4 Disclosure Requirements
Interest Expense disclosures shall include:
a) Total interest expense for the period
b) Interest expense by major debt category
c) Weighted average interest rate
d) Amount of interest capitalized during the period
e) Unused lines of credit and their terms
7. Tax Provisions
7.1 Current Tax Provision
Current tax provision shall be calculated based on:
a) Taxable income for the period
b) Applicable tax rates for federal, state, local, and international jurisdictions
c) Available tax credits and incentives
d) Estimated tax payments made during the period
7.2 Deferred Tax Provision
Deferred tax provision shall be calculated based on:
a) Temporary differences between book and tax accounting
b) Tax loss carryforwards and carrybacks
c) Tax credit carryforwards
d) Changes in valuation allowances
e) Changes in tax rates or tax laws
7.3 Effective Tax Rate Reconciliation
A reconciliation of the statutory tax rate to the effective tax rate shall be provided, explaining material differences due to:
a) Permanent differences
b) Foreign tax rate differentials
c) State and local taxes, net of federal benefit
d) Tax credits and incentives
e) Changes in valuation allowances
f) Prior year adjustments
g) Uncertain tax positions
7.4 Disclosure Requirements
Tax provision disclosures shall include:
a) Current and deferred tax expense or benefit
b) Effective tax rate reconciliation
c) Components of deferred tax assets and liabilities
d) Valuation allowances and their changes
e) Tax loss and credit carryforwards and their expiration
f) Uncertain tax positions and related reserves
8. Net Income Calculation
8.1 Definition and Formula
Net Income (or Net Loss) shall be calculated as:
Total Revenue - Cost of Goods Sold - Operating Expenses - Depreciation and Amortization - Interest Expense - Tax Provision = Net Income
8.2 Extraordinary Items and Discontinued Operations
Material non-recurring items shall be separately disclosed, including:
a) Gains or losses from discontinued operations
b) Extraordinary items (where permitted by applicable accounting standards)
c) Effects of changes in accounting principles
d) Prior period adjustments
8.3 Earnings Per Share (if applicable)
For corporations with shareholders, Earnings Per Share shall be calculated as:
a) Basic EPS = (Net Income - Preferred Dividends) ÷ Weighted Average Common Shares Outstanding
b) Diluted EPS = (Net Income - Preferred Dividends) ÷ (Weighted Average Common Shares Outstanding + Dilutive Securities)
8.4 Comprehensive Income
Comprehensive Income shall include Net Income plus Other Comprehensive Income items such as:
a) Unrealized gains or losses on available-for-sale securities
b) Foreign currency translation adjustments
c) Pension and other post-retirement benefit plan adjustments
d) Cash flow hedge gains or losses
Balance Sheet
9. Current Assets
9.1 Cash and Cash Equivalents
Cash and Cash Equivalents shall include:
a) Currency on hand
b) Demand deposits with financial institutions
c) Highly liquid investments with original maturities of three months or less
d) Restricted cash (with appropriate disclosure)
9.2 Short-term Investments
Short-term Investments shall include:
a) Marketable securities expected to be converted to cash within one year
b) Certificates of deposit with maturities of one year or less
c) Commercial paper
d) Other short-term investment vehicles
9.3 Accounts Receivable
Accounts Receivable shall be:
a) Recorded at the amount expected to be collected
b) Presented net of allowance for doubtful accounts
c) Aged and analyzed for collectibility
d) Disclosed with significant concentration risks
9.4 Inventory
Inventory shall be:
a) Categorized as:
i. Raw materials
ii. Work-in-process
iii. Finished goods
iv. Supplies and packaging materials
b) Valued at the lower of cost or net realizable value
c) Evaluated for obsolescence with appropriate reserves established
d) Disclosed with the valuation method used
9.5 Prepaid Expenses
Prepaid Expenses shall include:
a) Insurance premiums paid in advance
b) Rent paid in advance
c) Prepaid advertising and marketing costs
d) Prepaid taxes and licenses
e) Other payments made for benefits to be received in future periods
9.6 Other Current Assets
Other Current Assets shall include:
a) Current portion of notes receivable
b) Vendor deposits and advances
c) Refundable taxes
d) Assets held for sale
e) Other items expected to be converted to cash within one year
10. Fixed Assets
10.1 Property and Land
Property and Land shall be:
a) Recorded at historical cost plus improvements and direct acquisition costs
b) Separated between land (non-depreciable) and buildings (depreciable)
c) Evaluated for impairment when events or changes in circumstances indicate carrying value may not be recoverable
d) Disclosed with details of significant properties
10.2 Plant and Equipment
Plant and Equipment shall be:
a) Recorded at historical cost plus installation and preparation costs
b) Categorized by major asset class
c) Depreciated over estimated useful lives
d) Presented net of accumulated depreciation
e) Disclosed with depreciation methods and useful lives
10.3 Furniture and Fixtures
Furniture and Fixtures shall be:
a) Recorded at historical cost
b) Depreciated over estimated useful lives
c) Presented net of accumulated depreciation
d) Disclosed with depreciation methods and useful lives
10.4 Vehicles
Vehicles shall be:
a) Recorded at historical cost
b) Depreciated over estimated useful lives
c) Presented net of accumulated depreciation
d) Disclosed with depreciation methods and useful lives
10.5 Leasehold Improvements
Leasehold Improvements shall be:
a) Recorded at historical cost
b) Amortized over the shorter of the useful life or remaining lease term
c) Presented net of accumulated amortization
d) Disclosed with amortization methods and terms
10.6 Construction in Progress
Construction in Progress shall be:
a) Recorded at accumulated cost to date
b) Not depreciated until placed in service
c) Disclosed with estimated completion dates and remaining costs
11. Intangible Assets
11.1 Goodwill
Goodwill shall be:
a) Recorded at cost as the excess of purchase price over fair value of identifiable net assets acquired in business combinations
b) Not amortized but tested for impairment at least annually
c) Allocated to appropriate reporting units
d) Disclosed with changes during the period and impairment testing results
11.2 Patents
Patents shall be:
a) Recorded at acquisition cost or legal and registration costs for internally developed patents
b) Amortized over the legal life or useful economic life, whichever is shorter
c) Presented net of accumulated amortization
d) Evaluated for impairment when events or changes in circumstances indicate carrying value may not be recoverable
e) Disclosed with amortization methods and remaining useful lives
11.3 Trademarks and Trade Names
Trademarks and Trade Names shall be:
a) Recorded at acquisition cost or registration costs for internally developed trademarks
b) Amortized over the estimated useful life if finite, or tested for impairment annually if indefinite-lived
c) Presented net of accumulated amortization (if applicable)
d) Disclosed with amortization methods and remaining useful lives or impairment testing results
11.4 Copyrights
Copyrights shall be:
a) Recorded at acquisition cost or registration costs for internally developed copyrights
b) Amortized over the legal life or useful economic life, whichever is shorter
c) Presented net of accumulated amortization
d) Disclosed with amortization methods and remaining useful lives
11.5 Software and Technology
Software and Technology shall be:
a) Recorded at acquisition cost or development costs meeting capitalization criteria
b) Amortized over the estimated useful life
c) Presented net of accumulated amortization
d) Evaluated for impairment when events or changes in circumstances indicate carrying value may not be recoverable
e) Disclosed with amortization methods and remaining useful lives
11.6 Other Intangible Assets
Other Intangible Assets shall be:
a) Recorded at acquisition cost or development costs meeting capitalization criteria
b) Amortized over the estimated useful life if finite, or tested for impairment annually if indefinite-lived
c) Presented net of accumulated amortization (if applicable)
d) Disclosed with nature, amortization methods, and remaining useful lives or impairment testing results
12. Current Liabilities
12.1 Accounts Payable
Accounts Payable shall include:
a) Amounts owed to suppliers for goods and services received
b) Accrued purchases where invoices have not yet been received
c) Disclosed with significant concentration to specific vendors or industries
12.2 Short-term Loans and Lines of Credit
Short-term Loans and Lines of Credit shall include:
a) Borrowings due within one year
b) Current portion of long-term debt
c) Lines of credit balances
d) Disclosed with interest rates, maturity dates, and collateral
12.3 Accrued Expenses
Accrued Expenses shall include:
a) Accrued payroll and related benefits
b) Accrued interest
c) Accrued utilities and rent
d) Accrued professional fees
e) Other expenses incurred but not yet paid
f) Disclosed with significant categories itemized
12.4 Unearned Revenue
Unearned Revenue shall include:
a) Customer deposits
b) Advance payments for goods or services not yet delivered
c) Subscription or membership fees collected in advance
d) Disclosed with expected timing of revenue recognition
12.5 Taxes Payable
Taxes Payable shall include:
a) Income taxes payable
b) Sales and use taxes payable
c) Payroll taxes payable
d) Property taxes payable
e) Other tax obligations due within one year
f) Disclosed with types of taxes and payment due dates
12.6 Current Portion of Long-term Liabilities
Current Portion of Long-term Liabilities shall include:
a) Principal payments on long-term debt due within one year
b) Current portion of capital lease obligations
c) Current portion of deferred compensation arrangements
d) Disclosed with cross-reference to related long-term liability notes
13. Long-term Liabilities
13.1 Long-term Debt
Long-term Debt shall include:
a) Term loans with maturities beyond one year
b) Mortgages with maturities beyond one year
c) Bonds payable with maturities beyond one year
d) Notes payable with maturities beyond one year
e) Disclosed with interest rates, maturity dates, payment schedules, covenants, and collateral
13.2 Capital Lease Obligations
Capital Lease Obligations shall include:
a) Present value of minimum lease payments for leases classified as capital leases
b) Disclosed with lease terms, interest rates, and payment schedules
13.3 Deferred Tax Liabilities
Deferred Tax Liabilities shall include:
a) Future tax obligations arising from temporary differences between book and tax accounting
b) Disclosed with nature of temporary differences and expected reversal periods
13.4 Pension and Post-retirement Benefit Obligations
Pension and Post-retirement Benefit Obligations shall include:
a) Projected benefit obligations less plan assets for defined benefit plans
b) Post-retirement healthcare and other benefit obligations
c) Disclosed with actuarial assumptions, funded status, and expected future contributions
13.5 Other Long-term Liabilities
Other Long-term Liabilities shall include:
a) Deferred compensation arrangements
b) Asset retirement obligations
c) Warranty reserves extending beyond one year
d) Contingent consideration from business combinations
e) Other obligations due beyond one year
f) Disclosed with nature, terms, and expected settlement dates
14. Owner's Equity/Shareholders' Equity
14.1 Contributed Capital
Contributed Capital shall include:
a) For sole proprietorships and partnerships:
i. Owner's capital contributions
ii. Partner capital accounts
b) For corporations:
i. Common stock at par value
ii. Preferred stock at par value
iii. Additional paid-in capital
c) For LLCs:
i. Member capital contributions
d) Disclosed with classes of stock, par values, authorized shares, issued shares, and outstanding shares
14.2 Retained Earnings
Retained Earnings shall include:
a) Cumulative net income less distributions or dividends
b) Prior period adjustments
c) Disclosed with reconciliation of beginning and ending balances
14.3 Treasury Stock (for corporations)
Treasury Stock shall be:
a) Recorded at cost of repurchased shares
b) Presented as a reduction of shareholders' equity
c) Disclosed with number of shares and average cost
14.4 Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income shall include:
a) Cumulative foreign currency translation adjustments
b) Unrealized gains and losses on available-for-sale securities
c) Pension and post-retirement benefit plan adjustments
d) Cash flow hedge gains and losses
e) Disclosed with components and changes during the period
14.5 Non-controlling Interests
Non-controlling Interests shall include:
a) Portion of equity in subsidiaries not attributable to the parent company
b) Disclosed with reconciliation of beginning and ending balances
15. Balance Sheet Equation Verification
15.1 Equation Balance
The balance sheet shall be verified to ensure:
Total Assets = Total Liabilities + Total Equity
15.2 Cross-reference Verification
Balance sheet accounts shall be cross-referenced with:
a) Supporting schedules and subsidiary ledgers
b) Related income statement accounts
c) Related cash flow statement accounts
d) Notes to financial statements
15.3 Comparative Presentation
Balance sheet shall be presented with comparative figures from at least one prior period of equal length to facilitate trend analysis.
15.4 Classification Review
All accounts shall be reviewed to ensure proper classification as:
a) Current vs. non-current
b) Operating vs. non-operating
c) Recurring vs. non-recurring
Cash Flow Statement
16. Operating Activities
16.1 Direct Method Components (if used)
Cash flows from operating activities using the direct method shall include:
a) Cash received from customers
b) Cash paid to suppliers and vendors
c) Cash paid to employees
d) Interest received
e) Interest paid
f) Income taxes paid
g) Other operating cash receipts and payments
16.2 Indirect Method Components (if used)
Cash flows from operating activities using the indirect method shall include:
a) Net income
b) Adjustments for non-cash items:
i. Depreciation and amortization
ii. Deferred income taxes
iii. Stock-based compensation
iv. Gains or losses on asset disposals
v. Impairment charges
c) Adjustments for changes in working capital:
i. Accounts receivable
ii. Inventory
iii. Prepaid expenses
iv. Accounts payable
v. Accrued expenses
vi. Unearned revenue
vii. Other current assets and liabilities
16.3 Supplemental Disclosures
Supplemental disclosures for operating activities shall include:
a) Cash paid for interest
b) Cash paid for income taxes
c) Non-cash investing and financing activities
16.4 Reconciliation Requirement
If the direct method is used, a reconciliation of net income to net cash provided by operating activities shall also be provided.
17. Investing Activities
17.1 Capital Expenditures
Cash flows related to capital expenditures shall include:
a) Purchases of property, plant, and equipment
b) Purchases of intangible assets
c) Capitalized software development costs
d) Construction in progress expenditures
17.2 Business Acquisitions and Dispositions
Cash flows related to business acquisitions and dispositions shall include:
a) Cash paid for acquisitions, net of cash acquired
b) Cash proceeds from business dispositions, net of cash disposed
c) Cash paid or received for contingent consideration
17.3 Investment Activities
Cash flows related to investment activities shall include:
a) Purchases of investment securities
b) Proceeds from sales and maturities of investment securities
c) Loans made to others
d) Collections of loans made to others
17.4 Other Investing Activities
Cash flows related to other investing activities shall include:
a) Proceeds from sales of property, plant, and equipment
b) Proceeds from sales of intangible assets
c) Insurance recoveries for property damage
d) Other significant investing cash flows
18. Financing Activities
18.1 Debt-related Activities
Cash flows related to debt shall include:
a) Proceeds from short-term borrowings
b) Repayments of short-term borrowings
c) Proceeds from long-term debt issuance
d) Principal payments on long-term debt
e) Debt issuance costs paid
18.2 Equity-related Activities
Cash flows related to equity shall include:
a) Proceeds from issuance of common stock
b) Proceeds from issuance of preferred stock
c) Repurchases of common stock
d) Repurchases of preferred stock
e) Dividends paid
f) Distributions to partners or members
g) Capital contributions from partners or members
h) Capital withdrawals by partners or members
18.3 Lease-related Activities
Cash flows related to leases shall include:
a) Principal payments on capital lease obligations
b) Proceeds from sale-leaseback transactions
18.4 Other Financing Activities
Cash flows related to other financing activities shall include:
a) Debt extinguishment costs
b) Proceeds from exercise of stock options
c) Employee taxes paid for withheld shares
d) Other significant financing cash flows
19. Net Change in Cash
19.1 Calculation
Net Change in Cash shall be calculated as:
Net Cash Provided by (Used in) Operating Activities
- Net Cash Provided by (Used in) Investing Activities
- Net Cash Provided by (Used in) Financing Activities
= Net Increase (Decrease) in Cash and Cash Equivalents
19.2 Foreign Currency Impact
The effect of exchange rate changes on cash and cash equivalents held in foreign currencies shall be presented as a separate line item.
19.3 Presentation Requirements
Net Change in Cash shall be presented with:
a) Comparative figures from at least one prior period of equal length
b) Subtotals for each major category of cash flows
c) Clear reconciliation to the change in cash and cash equivalents on the balance sheet
20. Cash Reconciliation
20.1 Beginning Cash Balance
Beginning Cash Balance shall:
a) Match the ending cash balance from the prior period
b) Include all cash and cash equivalents as defined in the balance sheet section
c) Be presented as the starting point for the cash flow reconciliation
20.2 Ending Cash Balance
Ending Cash Balance shall:
a) Equal Beginning Cash Balance plus Net Change in Cash
b) Match the cash and cash equivalents amount on the balance sheet
c) Be presented as the final line item on the cash flow statement
20.3 Restricted Cash Considerations
Changes in restricted cash shall be:
a) Included in the appropriate section of the cash flow statement based on the nature of the restriction
b) Disclosed with explanation of restrictions
c) Reconciled to total cash and cash equivalents on the balance sheet
20.4 Supplemental Schedule
A supplemental schedule shall be provided reconciling:
a) Cash and cash equivalents per balance sheet
b) Restricted cash included in other balance sheet accounts
c) Total cash, cash equivalents, and restricted cash per cash flow statement
Statement of Changes in Equity
21. Beginning Equity Balance
21.1 Components
Beginning Equity Balance shall include:
a) For sole proprietorships and partnerships:
i. Owner's or partners' capital accounts
ii. Accumulated profits or losses
b) For corporations:
i. Common stock
ii. Preferred stock
iii. Additional paid-in capital
iv. Retained earnings
v. Treasury stock
vi. Accumulated other comprehensive income
c) For LLCs:
i. Members' capital accounts
ii. Accumulated profits or losses
21.2 Reconciliation to Prior Period
Beginning Equity Balance shall:
a) Match the ending equity balance from the prior period
b) Be adjusted for any prior period adjustments or accounting changes
c) Be presented with comparative figures from at least one prior period of equal length
21.3 Disclosure Requirements
Beginning Equity Balance disclosures shall include:
a) Detailed breakdown by equity component
b) Explanation of any restatements or reclassifications
c) Cross-reference to related notes
22. Net Income Addition
22.1 Net Income Incorporation
Net Income (or Net Loss) shall be:
a) Transferred from the income statement
b) Added to (or subtracted from) retained earnings or the appropriate equity account
c) Presented as a separate line item in the statement of changes in equity
22.2 Allocation to Equity Components
Net Income shall be allocated to appropriate equity components:
a) For sole proprietorships: To owner's capital account
b) For partnerships: To partners' capital accounts according to profit-sharing ratio
c) For corporations: To retained earnings
d) For LLCs: To members' capital accounts according to operating agreement
22.3 Comprehensive Income Considerations
Comprehensive Income components shall be:
a) Presented separately from net income
b) Added to the appropriate accumulated other comprehensive income accounts
c) Disclosed with detailed breakdown by component
23. Dividend Distributions
23.1 Types of Distributions
Dividend Distributions shall include:
a) For corporations:
i. Cash dividends on common stock
ii. Cash dividends on preferred stock
iii. Stock dividends
iv. Property dividends
b) For partnerships and LLCs:
i. Partner or member distributions
ii. Guaranteed payments to partners
23.2 Recording Requirements
Dividend Distributions shall be:
a) Recorded as reductions to retained earnings or the appropriate equity account
b) Presented as separate line items by type of distribution
c) Disclosed with declaration dates, record dates, and payment dates for formal dividends
23.3 Dividend Policies
Dividend policy information shall be disclosed, including:
a) Dividend frequency and timing
b) Dividend payout ratio targets
c) Dividend restrictions from debt covenants or regulatory requirements
d) Special dividend considerations
24. Capital Contributions
24.1 Types of Contributions
Capital Contributions shall include:
a) For sole proprietorships: Additional owner investments
b) For partnerships: Partner capital contributions
c) For corporations:
i. Common stock issuances
ii. Preferred stock issuances
iii. Exercise of stock options or warrants
iv. Conversion of convertible securities
d) For LLCs: Member capital contributions
24.2 Recording Requirements
Capital Contributions shall be:
a) Recorded as increases to the appropriate equity accounts
b) Presented as separate line items by type of contribution
c) Disclosed with number of shares or units and price per share or unit for formal issuances
24.3 Non-cash Contributions
Non-cash Capital Contributions shall be:
a) Recorded at fair value of assets contributed
b) Disclosed with description of assets contributed and valuation method
25. Ending Equity Balance
25.1 Calculation
Ending Equity Balance shall be calculated as:
Beginning Equity Balance
- Net Income (or - Net Loss)
- Other Comprehensive Income
- Other Equity Transactions
= Ending Equity Balance
25.2 Verification
Ending Equity Balance shall:
a) Match the total equity amount on the balance sheet
b) Be verified by recalculating each component
c) Be cross-referenced to supporting schedules and notes
25.3 Presentation Requirements
Ending Equity Balance shall be presented with:
a) Detailed breakdown by equity component
b) Comparative figures from at least one prior period of equal length
c) Clear reconciliation of all changes during the period
Notes to Financial Statements
26. Accounting Policies
26.1 Basis of Presentation
The basis of presentation disclosure shall include:
a) Accounting framework used (GAAP, IFRS, or other)
b) Basis of accounting (accrual or cash)
c) Fiscal year and reporting period
d) Reporting currency
e) Rounding conventions
26.2 Revenue Recognition
Revenue recognition policy disclosure shall include:
a) Timing of revenue recognition by revenue stream
b) Measurement of revenue (gross vs. net presentation)
c) Treatment of multiple element arrangements
d) Customer incentives and consideration payable
e) Contract modification policies
26.3 Inventory Valuation
Inventory valuation policy disclosure shall include:
a) Cost flow assumption (FIFO, LIFO, weighted average)
b) Lower of cost or market methodology
c) Inventory reserve policies
d) Treatment of overhead allocation
e) Consignment inventory treatment
26.4 Property, Plant, and Equipment
Property, plant, and equipment policy disclosure shall include:
a) Capitalization thresholds
b) Depreciation methods by asset class
c) Estimated useful lives by asset class
d) Residual value assumptions
e) Repair and maintenance policies
f) Impairment testing approach
26.5 Intangible Assets
Intangible assets policy disclosure shall include:
a) Recognition criteria
b) Amortization methods for finite-lived intangibles
c) Estimated useful lives by intangible asset class
d) Impairment testing approach for indefinite-lived intangibles
e) Internal research and development cost treatment
26.6 Leases
Lease policy disclosure shall include:
a) Lease classification criteria
b) Operating lease accounting
c) Capital/finance lease accounting
d) Sale-leaseback transaction treatment
e) Lease incentive treatment
26.7 Income Taxes
Income tax policy disclosure shall include:
a) Tax filing status
b) Deferred tax recognition and measurement
c) Valuation allowance methodology
d) Uncertain tax position recognition
e) Foreign income tax treatment
26.8 Foreign Currency
Foreign currency policy disclosure shall include:
a) Functional currency determination
b) Foreign currency transaction treatment
c) Translation of foreign entity financial statements
d) Hedging policies for foreign exchange risk
27. Significant Judgments and Estimates
27.1 Allowance for Doubtful Accounts
Allowance for doubtful accounts disclosure shall include:
a) Methodology for estimating uncollectible accounts
b) Aging categories and reserve percentages
c) Historical collection experience
d) Specific identification criteria
e) Changes in estimation methodology
27.2 Inventory Obsolescence
Inventory obsolescence disclosure shall include:
a) Methodology for identifying obsolete inventory
b) Aging or turnover thresholds
c) Market value determination
d) Historical obsolescence experience
e) Changes in estimation methodology
27.3 Asset Impairment
Asset impairment disclosure shall include:
a) Triggering events that prompt impairment testing
b) Asset grouping for impairment testing
c) Fair value determination methodology
d) Key assumptions in impairment models
e) Sensitivity of estimates to changes in assumptions
27.4 Warranty Reserves
Warranty reserve disclosure shall include:
a) Methodology for estimating warranty obligations
b) Historical warranty claim experience
c) Product-specific warranty terms
d) Changes in estimation methodology
e) Sensitivity of estimates to changes in assumptions
27.5 Legal and Contingent Liabilities
Legal and contingent liability disclosure shall include:
a) Methodology for assessing probability of loss
b) Estimation approach for probable losses
c) Materiality thresholds for disclosure
d) Key assumptions in liability calculations
e) Sensitivity of estimates to changes in assumptions
27.6 Pension and Post-retirement Benefits
Pension and post-retirement benefit disclosure shall include:
a) Actuarial methods used
b) Discount rate determination
c) Expected return on plan assets
d) Compensation increase assumptions
e) Healthcare cost trend assumptions
f) Mortality and turnover assumptions
g) Sensitivity of obligations to changes in key assumptions
28. Debt Disclosures
28.1 Debt Instruments
Debt instrument disclosure shall include:
a) Types of debt (term loans, lines of credit, bonds, notes)
b) Principal amounts by debt instrument
c) Interest rates (fixed or variable)
d) Maturity dates
e) Payment schedules
f) Debt issuance costs and amortization
28.2 Debt Covenants
Debt covenant disclosure shall include:
a) Financial covenants and required ratios
b) Operational covenants and restrictions
c) Covenant compliance status
d) Consequences of covenant violations
e) Covenant waiver or modification information
28.3 Collateral and Guarantees
Collateral and guarantee disclosure shall include:
a) Assets pledged as collateral
b) Personal guarantees by owners or officers
c) Cross-collateralization arrangements
d) Cross-default provisions
e) Guarantee limitations or conditions
28.4 Debt Maturities
Debt maturity disclosure shall include:
a) Scheduled principal payments for each of the next five years
b) Aggregate principal payments thereafter
c) Balloon payment amounts and timing
d) Early repayment options and penalties
e) Refinancing plans for near-term maturities
28.5 Lines of Credit
Line of credit disclosure shall include:
a) Total available credit
b) Amount drawn
c) Unused available credit
d) Expiration dates
e) Renewal terms and conditions
f) Commitment fees and unused line fees
29. Related Party Transactions
29.1 Related Party Identification
Related party identification shall include:
a) Owners, shareholders, members, or partners with significant influence
b) Directors, officers, and key management personnel
c) Immediate family members of individuals identified above
d) Entities controlled by or under common control with the business
e) Affiliates, subsidiaries, and parent companies
29.2 Transaction Types
Related party transaction disclosure shall include:
a) Sales of goods or services to related parties
b) Purchases of goods or services from related parties
c) Loans to or from related parties
d) Lease arrangements with related parties
e) Guarantees provided to or received from related parties
f) Management fees or royalty arrangements
g) Asset transfers between related parties
29.3 Transaction Terms
Related party transaction term disclosure shall include:
a) Transaction amounts
b) Outstanding balances
c) Payment terms and conditions
d) Interest rates on loans
e) Collateral provided or received
f) Comparison to arm's length terms
g) Business purpose of the transactions
29.4 Management Compensation
Management compensation disclosure shall include:
a) Salaries and wages
b) Bonuses and incentive compensation
c) Deferred compensation arrangements
d) Stock-based compensation
e) Perquisites and other personal benefits
f) Post-employment benefits
g) Termination benefits
30. Contingent Liabilities
30.1 Legal Proceedings
Legal proceeding disclosure shall include:
a) Nature of the litigation
b) Progress of the case
c) Anticipated timing of resolution
d) Range of potential loss or statement that estimation is not possible
e) Probability assessment (remote, reasonably possible, or probable)
f) Accrued amounts for probable losses
g) Insurance coverage applicable to the claim
30.2 Environmental Matters
Environmental matter disclosure shall include:
a) Nature of environmental obligations
b) Regulatory requirements and compliance status
c) Remediation plans and progress
d) Range of potential costs or statement that estimation is not possible
e) Probability assessment
f) Accrued amounts for probable losses
g) Insurance or indemnification coverage
30.3 Guarantees
Guarantee disclosure shall include:
a) Nature of the guarantee
b) Maximum potential amount under the guarantee
c) Current carrying amount of the liability
d) Term of the guarantee
e) Recourse provisions
f) Collateral held
g) Events or circumstances that would require performance
30.4 Product Warranties
Product warranty disclosure shall include:
a) Warranty terms and coverage
b) Methodology for estimating warranty obligations
c) Warranty reserve balance
d) Warranty expense for the period
e) Warranty claims paid during the period
f) Changes in warranty reserve during the period
30.5 Other Contingencies
Other contingency disclosure shall include:
a) Nature of the contingency
b) Estimated financial effect or statement that estimation is not possible
c) Probability assessment
d) Timing of potential resolution
e) Factors that may affect the ultimate outcome
31. Subsequent Events
31.1 Recognized Subsequent Events
Recognized subsequent event disclosure shall include:
a) Nature of the event
b) Financial statement impact
c) Accounting treatment applied
d) Date of the event
31.2 Non-recognized Subsequent Events
Non-recognized subsequent event disclosure shall include:
a) Nature of the event
b) Estimate of financial effect or statement that estimation is not possible
c) Reason for non-recognition
d) Date of the event
31.3 Date Through Which Subsequent Events Evaluated
The financial statements shall disclose the date through which subsequent events have been evaluated.
31.4 Types of Subsequent Events
Subsequent event disclosure shall address significant events such as:
a) Business combinations
b) Disposals of business segments
c) Casualty losses
d) Significant new debt or equity issuances
e) Debt covenant violations or waivers
f) Litigation settlements
g) Changes in business conditions affecting asset valuations
h) Restructuring plans
Financial Analysis
32. Liquidity Ratios
32.1 Current Ratio
Current Ratio shall be:
a) Calculated as: Current Assets ÷ Current Liabilities
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of business cycle and seasonality
32.2 Quick Ratio
Quick Ratio shall be:
a) Calculated as: (Cash + Cash Equivalents + Short-term Investments + Accounts Receivable) ÷ Current Liabilities
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of collection cycles and payment terms
32.3 Cash Ratio
Cash Ratio shall be:
a) Calculated as: (Cash + Cash Equivalents) ÷ Current Liabilities
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of cash management strategies
32.4 Working Capital
Working Capital shall be:
a) Calculated as: Current Assets - Current Liabilities
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to revenue and operational needs
d) Interpreted with consideration of growth plans and seasonal requirements
32.5 Operating Cash Flow Ratio
Operating Cash Flow Ratio shall be:
a) Calculated as: Operating Cash Flow ÷ Current Liabilities
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of earnings quality and cash conversion
33. Profitability Ratios
33.1 Gross Margin
Gross Margin shall be:
a) Calculated as: (Revenue - Cost of Goods Sold) ÷ Revenue
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of pricing strategy and cost structure
33.2 Operating Margin
Operating Margin shall be:
a) Calculated as: Operating Income ÷ Revenue
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of fixed vs. variable cost structure
33.3 Net Profit Margin
Net Profit Margin shall be:
a) Calculated as: Net Income ÷ Revenue
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of tax strategy and capital structure
33.4 Return on Assets (ROA)
Return on Assets shall be:
a) Calculated as: Net Income ÷ Average Total Assets
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of asset intensity and utilization
33.5 Return on Equity (ROE)
Return on Equity shall be:
a) Calculated as: Net Income ÷ Average Shareholders' Equity
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of leverage and capital structure
33.6 Return on Invested Capital (ROIC)
Return on Invested Capital shall be:
a) Calculated as: Net Operating Profit After Tax ÷ (Total Assets - Current Liabilities)
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks and weighted average cost of capital
d) Interpreted with consideration of investment strategy and capital allocation
34. Efficiency Ratios
34.1 Inventory Turnover
Inventory Turnover shall be:
a) Calculated as: Cost of Goods Sold ÷ Average Inventory
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of inventory management practices and product lifecycle
34.2 Days Inventory Outstanding
Days Inventory Outstanding shall be:
a) Calculated as: 365 ÷ Inventory Turnover
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of supply chain efficiency and obsolescence risk
34.3 Accounts Receivable Turnover
Accounts Receivable Turnover shall be:
a) Calculated as: Net Credit Sales ÷ Average Accounts Receivable
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of credit policies and collection effectiveness
34.4 Days Sales Outstanding
Days Sales Outstanding shall be:
a) Calculated as: 365 ÷ Accounts Receivable Turnover
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of payment terms and customer quality
34.5 Accounts Payable Turnover
Accounts Payable Turnover shall be:
a) Calculated as: Purchases ÷ Average Accounts Payable
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of vendor relationships and cash management
34.6 Days Payable Outstanding
Days Payable Outstanding shall be:
a) Calculated as: 365 ÷ Accounts Payable Turnover
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of payment terms and cash flow management
34.7 Asset Turnover
Asset Turnover shall be:
a) Calculated as: Revenue ÷ Average Total Assets
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of capital intensity and asset utilization
34.8 Fixed Asset Turnover
Fixed Asset Turnover shall be:
a) Calculated as: Revenue ÷ Average Net Fixed Assets
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of capacity utilization and investment efficiency
35. Solvency Ratios
35.1 Debt-to-Equity Ratio
Debt-to-Equity Ratio shall be:
a) Calculated as: Total Debt ÷ Total Equity
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of financial risk tolerance and capital structure strategy
35.2 Debt-to-Assets Ratio
Debt-to-Assets Ratio shall be:
a) Calculated as: Total Debt ÷ Total Assets
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks
d) Interpreted with consideration of asset financing strategy
35.3 Interest Coverage Ratio
Interest Coverage Ratio shall be:
a) Calculated as: Earnings Before Interest and Taxes ÷ Interest Expense
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks and debt covenant requirements
d) Interpreted with consideration of earnings volatility and debt service capacity
35.4 Fixed Charge Coverage Ratio
Fixed Charge Coverage Ratio shall be:
a) Calculated as: (EBIT + Lease Payments) ÷ (Interest Expense + Lease Payments)
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks and debt covenant requirements
d) Interpreted with consideration of fixed financial obligations beyond interest
35.5 Debt Service Coverage Ratio
Debt Service Coverage Ratio shall be:
a) Calculated as: Operating Income ÷ Total Debt Service
b) Presented with comparative figures from at least one prior period
c) Analyzed relative to industry benchmarks and lender requirements
d) Interpreted with consideration of cash flow adequacy for debt obligations
36. Trend Analysis
36.1 Revenue Trend Analysis
Revenue trend analysis shall include:
a) Year-over-year growth rates for at least three years
b) Compound annual growth rate (CAGR)
c) Seasonal patterns and adjustments
d) Comparison to industry growth rates
e) Analysis by product line, service category, or business segment
36.2 Margin Trend Analysis
Margin trend analysis shall include:
a) Year-over-year changes in gross margin, operating margin, and net margin
b) Identification of margin expansion or compression factors
c) Correlation with volume changes, pricing changes, and cost structure changes
d) Comparison to industry margin trends
36.3 Expense Trend Analysis
Expense trend analysis shall include:
a) Year-over-year changes in major expense categories
b) Expenses as a percentage of revenue over time
c) Fixed vs. variable expense trends
d) Identification of expense management opportunities
e) Comparison to industry expense benchmarks
36.4 Balance Sheet Trend Analysis
Balance sheet trend analysis shall include:
a) Year-over-year changes in major asset and liability categories
b) Common-size analysis (each item as a percentage of total assets)
c) Working capital trend analysis
d) Asset composition changes over time
e) Liability and equity composition changes over time
36.5 Cash Flow Trend Analysis
Cash flow trend analysis shall include:
a) Year-over-year changes in operating, investing, and financing cash flows
b) Free cash flow trends
c) Cash conversion cycle trends
d) Capital expenditure trends relative to depreciation
e) Dividend and distribution trends relative to net income
Compliance and Standards
37. Accounting Standards Compliance
37.1 Framework Identification
The financial statements shall clearly identify the accounting framework applied:
a) Generally Accepted Accounting Principles (GAAP)
b) International Financial Reporting Standards (IFRS)
c) Tax basis of accounting
d) Cash basis of accounting
e) Modified cash basis of accounting
f) Other comprehensive basis of accounting
37.2 Compliance Statement
The financial statements shall include an explicit statement of compliance with the identified framework.
37.3 Departures from Standards
Any departures from the identified framework shall be:
a) Clearly disclosed
b) Explained with rationale for the departure
c) Quantified as to financial impact where practicable
37.4 Recent Pronouncements
The financial statements shall disclose:
a) Recently issued accounting standards not yet adopted
b) Expected impact of future adoption
c) Planned implementation timing
37.5 Accounting Changes
Changes in accounting principles, estimates, or error corrections shall be:
a) Clearly disclosed
b) Explained with rationale for the change
c) Quantified as to financial impact
d) Applied retrospectively or prospectively as appropriate under the framework
38. Industry-Specific Disclosures
38.1 Industry Identification
The financial statements shall identify the primary industry or industries in which the business operates.
38.2 Industry-Specific Metrics
The financial statements shall include industry-specific metrics relevant to the business, such as:
a) For retail: Same-store sales, sales per square foot, inventory shrinkage
b) For manufacturing: Capacity utilization, order backlog, raw material usage
c) For services: Billable hours, utilization rates, client retention
d) For technology: Recurring revenue, customer acquisition cost, lifetime value
e) For real estate: Occupancy rates, rent per square foot, funds from operations
38.3 Industry-Specific Accounting Policies
The financial statements shall disclose industry-specific accounting policies, such as:
a) For construction: Percentage-of-completion methodology
b) For software: Revenue recognition for multiple element arrangements
c) For financial services: Loan loss reserve methodology
d) For healthcare: Patient service revenue recognition
e) For hospitality: Loyalty program accounting
38.4 Industry Regulatory Disclosures
The financial statements shall include disclosures required by industry-specific regulations, such as:
a) For financial institutions: Capital adequacy ratios
b) For healthcare: Compliance with Medicare and Medicaid regulations
c) For energy: Environmental compliance and asset retirement obligations
d) For transportation: Safety compliance and operating statistics
e) For government contractors: Contract compliance and backlog
39. Regulatory Compliance
39.1 Entity Structure Compliance
The financial statements shall comply with requirements specific to the business's legal structure:
a) For corporations: Shareholder equity requirements
b) For partnerships: Partner capital account requirements
c) For LLCs: Member equity requirements
d) For sole proprietorships: Owner's equity requirements
e) For non-profit organizations: Net asset classification requirements
39.2 Size-Based Requirements
The financial statements shall comply with requirements based on the business's size:
a) For public companies: SEC reporting requirements
b) For private companies: GAAP alternatives permitted under the Private Company Council
c) For small businesses: Simplified reporting options where permitted
d) For micro-entities: Minimum disclosure requirements
39.3 Tax Compliance Disclosures
The financial statements shall include disclosures related to tax compliance:
a) Income tax filing status
b) Tax years open to examination
c) Uncertain tax positions
d) Tax credits and incentives
e) Tax planning strategies with financial statement impact
39.4 Regulatory Agency Disclosures
The financial statements shall include disclosures required by applicable regulatory agencies:
a) Securities and Exchange Commission (for public companies)
b) Federal and state banking regulators (for financial institutions)
c) Insurance commissioners (for insurance companies)
d) Federal Communications Commission (for telecommunications companies)
e) Other industry-specific regulatory bodies
Appendices
Appendix A: Financial Statement Templates
A.1 Income Statement Template
[COMPANY NAME]
Income Statement
For the [Period] Ended [Date]
Current Period Prior Period % Change
Revenue:
Product Sales $ $ %
Service Revenue $ $ %
Other Revenue $ $ %
Total Revenue $ $ %
Cost of Goods Sold:
Materials $ $ %
Direct Labor $ $ %
Manufacturing Overhead $ $ %
Total Cost of Goods Sold $ $ %
Gross Profit $ $ %
Gross Margin % %
Operating Expenses:
Selling Expenses $ $ %
General & Administrative $ $ %
Research & Development $ $ %
Depreciation & Amortization $ $ %
Total Operating Expenses $ $ %
Operating Income $ $ %
Operating Margin % %
Other Income (Expense):
Interest Income $ $ %
Interest Expense $ $ %
Other Income (Expense) $ $ %
Total Other Income (Expense) $ $ %
Income Before Taxes $ $ %
Income Tax Provision $ $ %
Effective Tax Rate % %
Net Income $ $ %
Net Profit Margin % %
A.2 Balance Sheet Template
[COMPANY NAME]
Balance Sheet
As of [Date]
Current Period Prior Period % Change
ASSETS
Current Assets:
Cash and Cash Equivalents $ $ %
Short-term Investments $ $ %
Accounts Receivable, net $ $ %
Inventory $ $ %
Prepaid Expenses $ $ %
Other Current Assets $ $ %
Total Current Assets $ $ %
Non-Current Assets:
Property, Plant & Equipment $ $ %
Less: Accumulated Depreciation $ $ %
Net Property, Plant & Equipment $ $ %
Intangible Assets, net $ $ %
Goodwill $ $ %
Other Non-Current Assets $ $ %
Total Non-Current Assets $ $ %
TOTAL ASSETS $ $ %
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable $ $ %
Short-term Debt $ $ %
Current Portion of Long-term Debt $ $ %
Accrued Expenses $ $ %
Unearned Revenue $ $ %
Other Current Liabilities $ $ %
Total Current Liabilities $ $ %
Non-Current Liabilities:
Long-term Debt $ $ %
Deferred Tax Liabilities $ $ %
Other Non-Current Liabilities $ $ %
Total Non-Current Liabilities $ $ %
TOTAL LIABILITIES $ $ %
Equity:
[Appropriate Equity Accounts] $ $ %
Retained Earnings $ $ %
Other Equity $ $ %
Total Equity $ $ %
TOTAL LIABILITIES AND EQUITY $ $ %
A.3 Cash Flow Statement Template
[COMPANY NAME]
Statement of Cash Flows
For the [Period] Ended [Date]
Current Period Prior Period % Change
OPERATING ACTIVITIES
Net Income $ $ %
Adjustments to reconcile net income to net cash:
Depreciation and Amortization $ $ %
Deferred Income Taxes $ $ %
Stock-based Compensation $ $ %
Other Non-cash Items $ $ %
Changes in operating assets and liabilities:
Accounts Receivable $ $ %
Inventory $ $ %
Prepaid Expenses $ $ %
Accounts Payable $ $ %
Accrued Expenses $ $ %
Unearned Revenue $ $ %
Other Operating Assets/Liabilities$ $ %
Net Cash from Operating Activities $ $ %
INVESTING ACTIVITIES
Capital Expenditures $ $ %
Business Acquisitions $ $ %
Proceeds from Asset Sales $ $ %
Purchases of Investments $ $ %
Sales/Maturities of Investments $ $ %
Other Investing Activities $ $ %
Net Cash from Investing Activities $ $ %
FINANCING ACTIVITIES
Proceeds from Debt $ $ %
Repayment of Debt $ $ %
Dividends/Distributions Paid $ $ %
Capital Contributions $ $ %
Stock Repurchases $ $ %
Other Financing Activities $ $ %
Net Cash from Financing Activities $ $ %
Net Increase (Decrease) in Cash $ $ %
Cash at Beginning of Period $ $ %
Cash at End of Period $ $ %
Supplemental Disclosures:
Cash Paid for Interest $ $ %
Cash Paid for Income Taxes $ $ %
Non-cash Investing/Financing $ $ %
A.4 Statement of Changes in Equity Template
[COMPANY NAME]
Statement of Changes in Equity
For the [Period] Ended [Date]
[Appropriate Equity Accounts] Retained Other Total
Earnings Equity Equity
Balance at Beginning of Period $ $ $ $
Net Income $ $
Other Comprehensive Income $ $
Dividends/Distributions $ $
Capital Contributions $ $
Stock-based Compensation $ $
Other Equity Transactions $ $ $ $
Balance at End of Period $ $ $ $
Appendix B: Financial Ratio Formulas
B.1 Liquidity Ratios
- Current Ratio = Current Assets ÷ Current Liabilities
- Quick Ratio = (Cash + Cash Equivalents + Short-term Investments + Accounts Receivable) ÷ Current Liabilities
- Cash Ratio = (Cash + Cash Equivalents) ÷ Current Liabilities
- Working Capital = Current Assets - Current Liabilities
- Operating Cash Flow Ratio = Operating Cash Flow ÷ Current Liabilities
B.2 Profitability Ratios
- Gross Margin = (Revenue - Cost of Goods Sold) ÷ Revenue
- Operating Margin = Operating Income ÷ Revenue
- Net Profit Margin = Net Income ÷ Revenue
- Return on Assets (ROA) = Net Income ÷ Average Total Assets
- Return on Equity (ROE) = Net Income ÷ Average Shareholders' Equity
- Return on Invested Capital (ROIC) = Net Operating Profit After Tax ÷ (Total Assets - Current Liabilities)
B.3 Efficiency Ratios
- Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
- Days Inventory Outstanding = 365 ÷ Inventory Turnover
- Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable
- Days Sales Outstanding = 365 ÷ Accounts Receivable Turnover
- Accounts Payable Turnover = Purchases ÷ Average Accounts Payable
- Days Payable Outstanding = 365 ÷ Accounts Payable Turnover
- Asset Turnover = Revenue ÷ Average Total Assets
- Fixed Asset Turnover = Revenue ÷ Average Net Fixed Assets
B.4 Solvency Ratios
- Debt-to-Equity Ratio = Total Debt ÷ Total
