Financial Accounting: An Integrated Statements Approach, 2nd Edition

The income statement is prepared from the income statement column, and the state-

ment of cash flows is prepared from the statement of cash flows column.

The IFS summary spreadsheet also illustrates the dynamic nature of the balance

sheet as it changes over time with the recording of transactions. Specifically, as trans-

actions occur and are recorded, the beginning balances change until the end of the pe-

riod. While the balance sheet is prepared as a point-in-time statement, the IFS summary

spreadsheet illustrates its dynamic nature.

IFS Margin Notations

Financial Accountinguses IFS spreadsheets to record transactions before the intro-

duction of debits and credits. Accounting systems including the rules of debits and

credits are described and illustrated in Chapter 4. With the introduction of debits

and credits, journal entries and ledger (T) accounts are used to record transactions.

In order to emphasize the integrated nature of the effects of transactions on the fi-

nancial statements, a specially designed IFS margin notation accompanies each

journal entry throughout the text. An example of an IFS margin notation is shown

below.

xiv Preface

Nov. 5 Land 20,

Cash 20,

10 Supplies 1,

Accounts Payable 1,

18 Cash 7,

Fees Earned 7,

30 Wages Expense 2,

Rent Expense 800

Utilities Expense 450

Miscellaneous Expense 275

Cash 3,

30 Accounts Payable 950

Cash 950

30 Dividends 2,

Cash 2,

SCF BS IS

IT AcT —

—AcLc —

Oc AcSEc Rc

OT ATSET Ec

OT ATLT —

FT ATSET —

The IFS margin notation illustrates with arrows what elements of the statement of

cash flows, balance sheet, and income statement are affected by a transaction. Upward

pointing arrows indicate increases in the element, and downward pointing arrows

indicate decreases. In addition, the columns of the IFS margin notation are shown in

colors corresponding to the colors of the statements on the IFS spreadsheet and the

formal statements.

The combined effect of the IFS exhibits, IFS spreadsheets, and IFS margin nota-

tions is that students will have a better understanding of the integrated nature of the

financial statements and effects of transactions on the financial statements. In turn,

this understanding will enhance the student’s ability to analyze and interpret finan-

cial statements.

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