# Reference — Preparing Financial Statements ## Contents - Account classification table - Worked example: trial balance → three tied statements - Framework comparison (US GAAP / IFRS / ASPE) - Gotchas ## Account classification table | Account | Statement | Line | |---|---|---| | Cash, AR, inventory, prepaid | Balance sheet | Current assets | | Equipment, vehicles, leaseholds | Balance sheet | Non-current assets | | Accumulated depreciation | Balance sheet | Contra to non-current assets | | AP, credit cards, sales tax payable, payroll liabilities | Balance sheet | Current liabilities | | Loan principal due ≤12 months | Balance sheet | Current portion of long-term debt | | Loan principal due >12 months | Balance sheet | Non-current liabilities | | Capital, draws, retained earnings | Balance sheet | Equity | | Sales, refunds/discounts | Income statement | Revenue (net) | | COGS | Income statement | Cost of goods sold | | Rent, wages, software, insurance, depreciation | Income statement | Operating expenses | | Interest expense | Income statement | Below operating income | ## Worked example (year 1, small consultancy) **Trial balance (Dec 31, 2026):** | Account | Dr | Cr | |---|---|---| | Cash | 34,000 | | | Accounts receivable | 6,000 | | | Equipment | 10,000 | | | Accumulated depreciation | | 2,000 | | Accounts payable | | 3,000 | | Loan payable | | 8,000 | | Owner's capital | | 5,000 | | Owner's draws | 20,000 | | | Revenue | | 90,000 | | Operating expenses | 36,000 | | | Depreciation expense | 2,000 | | | **Totals** | **108,000** | **108,000** | **Income statement:** Revenue 90,000 − Operating expenses 36,000 − Depreciation 2,000 = **Net income 52,000** **Balance sheet:** - Assets: Cash 34,000 + AR 6,000 + Equipment 10,000 − Accum. dep. 2,000 = **48,000** - Liabilities: AP 3,000 + Loan 8,000 = 11,000 - Equity: Capital 5,000 + Net income 52,000 − Draws 20,000 = 37,000 - Liabilities + Equity = **48,000** ✔ balances **Cash flow (indirect):** - Operating: 52,000 + 2,000 depreciation − 6,000 AR increase + 3,000 AP increase = 51,000 - Investing: −10,000 equipment - Financing: +5,000 capital +8,000 loan −20,000 draws = −7,000 - Net change: 34,000; beginning cash 0 → **ending cash 34,000** ✔ ties to balance sheet All three ties hold: balance sheet balances; RE roll-forward uses 52,000; ending cash matches. ## Framework comparison | Aspect | US GAAP | IFRS | ASPE (Canada, private) | |---|---|---|---| | Who must use | US companies (public: SEC GAAP) | Canadian public companies; optional elsewhere | Default for Canadian private enterprises | | Complexity | High | High | Simplified, made-in-Canada | | Revaluation of fixed assets | No | Allowed | No | | Development costs | Expensed (mostly) | Capitalize if criteria met | Policy choice | | Statement titles | Flexible | "Statement of financial position" etc. | Traditional titles common | Disclose the basis on the statements (e.g., "Prepared in accordance with ASPE, unaudited"). ## Gotchas - **Draws/dividends never touch the income statement** — equity only. A P&L with "owner draw expense" overstates costs. - **Working-capital signs** in the cash flow trip everyone: asset increases consume cash (subtract); liability increases provide cash (add). - **Current portion of long-term debt** must be split out yearly or current liabilities are understated. - **Refunds** net against revenue, not expenses. - **Comparative columns must use the same account mapping** — a reclassified account needs the prior year restated or a note.