Discussion Board Forum 2
In line with the periodicity assumption of accounting principle, each entity must present its financial report at the end of each financial year. This financial report entails the financial statements of the entity and other financial decisions made by the entity. The major component of the financial report is the financial statements. The financial statements present the entity’s financial performance for the given year, the financial position, the amount of cash inflow and outflow, and the state of shareholder equity. The statements are usually accompanied by notes which provide a clear and in-depth understanding of the elements of financial statements. In presenting these financial statements, an entity must ensure that the intended users understand the statements. The financial statements should be clear and understandable.
In this discussion, the financial statements considered are the 2019 financial statements for Kellogg Company. Kellogg Company is an American based manufacturer and marketer of ready-to-eat cereal and convenience goods established in 1906. The financial statements presented by Kellogg Company include the consolidated statement of income, the consolidated balance sheet, consolidated statement of equity, the consolidated statement of cash flows, and the accompanying notes.
The consolidated statement of income presented is similar to the example given in the textbook. The statement provides the sources of income for the company and the respective expenses incurred to generate the income. As a merchandise company, the cost of goods sold and selling, general, and administrative expenses are subtracted from the net sales to obtain the company’s operating profit. Other operating expenses, such as interest expenses, are deducted from the operating profit to get the income before income taxes. After that, the income taxes are subtracted to obtain the net income for the year 2019. The net income obtained is then attributed to the non-controlling interest and Kellogg Company, respectively. Finally, the diluted and basic share prices of the company are obtained.
Kellogg’s balance sheet adopts a similar structure as the example studied. The balance sheet adopts a tabular format with the total assets divided into current assets and non-current assets. Some of the current assets presented include cash and cash equivalents, net accounts receivable, and inventories. Some of the non-current assets shown include net property, operating lease right-of-use assets, and goodwill. Similarly, the total liabilities are also subdivided into current and non-current liabilities. The equity elements presented include common stock, retained earnings, and treasury stock. As studied in the textbook, the sum of liabilities and equity is equal to the sum of assets for Kellogg Company.
The consolidated statement of equity presented by Kellogg Company is similar to the textbook examples. The 2019 statement of equity shows changes in the equity position of the company, occasioned by changes in common stock, retained earnings, and treasury stock.
The consolidated statement of cash flows exhibits a similar trend as the textbook example. The statement shows the operating, investing, and financing activities for 2019 for Kellogg Company. The changes in cash flow for these activities are added to give the net cash and cash equivalents for 2019.
The Kellogg Company’s financial statements presented are understandable. The format of the presentation adopted by the company makes it easy to study and understand the financial statements. The computation of net income is procedural, making it easy for users to understand. Similarly, the addition of assets is clear and making it understandable for any uses. The same addition has been adopted for the addition of liabilities and equity in the consolidated balance sheet. With the consolidated statement of cash flows adopting a clear format with separation of cash flow activities, it makes it understandable for a user. Similarly, the consolidated statement of equity is understandable.
Kellogg Company’s financial statements clearly fit together. The statement of consolidated income is first calculated to obtain the net income, which is added to the equity part of the balance sheet. The changes in assets, liabilities, and equity that is increase and decrease of respective elements are reflected in the statement of cash flows.
One of the three things that stand out in Kellogg Company’s financial statements is the comparison of annual financial performance. The financial statements presented compares the 2019 and 2018 financial performance. This enables users of financial statements to make rational comparisons and analyses. The second thing that stands out is the notes to the financial statements. Kellogg Company has provided clear explanations of each of the elements of financial statements to enable users to understand better. The notes contain the accounting policies used by the company. The third item that stands out is the breakdown of comprehensive income attributable to Kellogg Company. The consolidated statement of comprehensive income provides a breakdown of the company’s net income to enhance a clear understanding by any user.