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.