Sunflower Intelligence
Finance & Accounting

F02 · Introductory

Financial Statement Preparation

10 lessons

F02 · Introductory · 10 lessons in four modules · about 14.5 hours

Financial Statement Preparation

Build all four financial statements and see how every transaction flows through them.

What you will learn

  • Apply the five-step revenue recognition model to decide when, and how much, revenue to record, including deferred revenue and refunds.
  • Account for inventory under perpetual and periodic systems, calculate cost of goods sold and ending inventory by FIFO, LIFO and weighted average, and apply the lower of cost and net realisable value.
  • Prepare a multi-step income statement and calculate gross profit, operating income, EBIT and EBITDA.
  • Account for receivables, payables and long-lived assets (bad debts, depreciation, disposals, amortisation), and prepare a classified balance sheet and a statement of changes in equity.
  • Prepare a statement of cash flows by the direct and the indirect method, and trace how a transaction moves through all four statements.
  • Explain the main differences between US GAAP and IFRS for the statements in this course.

Prerequisites

How it works

Each lesson teaches the idea from first principles, works examples step by step, lets you explore it in an interactive, then has you practise with feedback. A lesson is complete when you have worked its guided problems and scored 80% on its knowledge check. Mastery is tracked separately and comes back for review before you are likely to forget. Each module ends with a test; the course ends with a project and a final assessment.

Fictional case

Lantern Coffee Co. A fictional coffee business founded by Ana Lim. It starts as a catering and barista-training service, opens its own cafés and an online shop for beans, and plans a canned cold brew. Every name and figure in it is invented for teaching.

Not sure where to start?

The diagnostic has 12 questions across the course. It doesn’t count toward anything; it suggests the module to start from. Take the diagnostic.

Modules and lessons

Module 1 Revenue, inventory and the income statement

  1. Revenue recognitionDecide when revenue is earned and how much to record by working through the five steps of ASC 606 and IFRS 15: deposits and prepaid subscriptions, bundles, refunds, discounts and the question of gross or net. Then reconcile Lantern’s online-shop order values with the revenue in its books.85 min · not started
  2. Inventory and cost of goods soldFollow the cost of the bags Lantern sells from the roaster’s invoice to the income statement: what goes into inventory, perpetual and periodic records, the FIFO, LIFO and weighted average formulas, the lower of cost and net realisable value, and what each choice does to gross profit, tax and the balance sheet.85 min · not started
  3. The multi-step income statementRebuild Lantern’s first-year income statement in stages: net revenue, cost of sales and gross profit, operating expenses and operating income, interest, income tax and net income. Then calculate EBIT and EBITDA, see the rules for presenting non-GAAP measures, and meet earnings per share.80 min · not started
  4. Module 1 test12 questions on this module. 70% passes.not taken

Module 2 The balance sheet

  1. Receivables and payablesSelling on credit creates receivables, and some of them will never be paid. Learn the allowance method that US GAAP and IFRS require, estimate bad debts by aging and by a percentage of sales, account for notes receivable, and build up a business’s current liabilities, using Lantern’s first year-end.100 min · not started
  2. Long-lived assetsEquipment, vehicles, buildings and patents help a business earn revenue for years, so their cost is spread over those years. Learn what goes into an asset’s cost, how to depreciate it by three methods, what to do when estimates change or the asset is sold, how intangible assets and goodwill are treated, and where US GAAP and IFRS part company.100 min · not started
  3. The balance sheet and equityPut Lantern’s year-end balances into a classified balance sheet: decide what is current, split a loan into its current and noncurrent parts, and calculate working capital and the current ratio. Then look inside equity, at par value, additional paid-in capital, dividends and the statement of changes in equity.90 min · not started
  4. Module 2 test12 questions on this module. 70% passes.not taken

Module 3 The statement of cash flows

  1. The statement of cash flowsPrepare a full year’s statement of cash flows: decide what counts as cash, classify every receipt and payment under US GAAP and IFRS, work out the direct-method lines from the accrual records, and disclose what changed without any cash moving.75 min · not started
  2. The indirect methodStart from net income and reach cash from operating activities: add back noncash expenses, take out gains and losses, adjust for every change in operating working capital, then prepare a full statement from two balance sheets and reconcile it with the direct method.80 min · not started
  3. Module 3 test11 questions on this module. 70% passes.not taken

Module 4 Putting the statements together

  1. Linking the statementsPut Lantern’s whole annual report together, check that its four statements articulate and find the error when they don’t, follow single transactions through all of them, see where the gap between profit and cash sits, and push one change through the three main statements the way analysts test a model.80 min · not started
  2. US GAAP and IFRSCompare the two frameworks where they differ for the statements in this course (inventory, property, development costs, leases, cash-flow classification and, from 2027, the structure of the income statement), measure what each difference does to the figures, and see why Lantern reports under US GAAP.85 min · not started
  3. Module 4 test12 questions on this module. 70% passes.not taken

Project and final assessment

  1. Project: Brightwater Bike Repair’s first full yearPrepare all four financial statements for Brightwater’s 2027, the year it starts selling bikes and accessories: cost its inventory, estimate bad debts, record a disposal, and show how the statements connect.not taken
  2. Final assessment25 questions across the whole course. 70% passes.not taken

The course is complete when every lesson is complete, every module test is passed, the project is finished and the final assessment is passed.

Resources

  • Glossary: every term this course defines.
  • Formulas: every formula with its symbols and units.
  • Review: flashcards and the questions you missed, when they are due.

Sources used in this course

  1. IFRS Foundation. IFRS 15 Revenue from Contracts with Customers. Standard summary page (the core principle and the five steps; issued May 2014; effective for annual periods beginning on or after 1 January 2018). ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-…
  2. Australian Accounting Standards Board. Compiled AASB 15 Revenue from Contracts with Customers (compiled 31 December 2022), which incorporates IFRS 15 with its paragraph numbering; paragraphs 9, 27, 33, 35, 38, 47, 51, 74, 77, 79, 106, 107, 108, B21 and B35B–B37, and Appendix A. Federal Register of Legislation. legislation.gov.au/F2015L00115/2022-12-31/2022-12-31/text/or…
  3. Deloitte. Roadmap: Revenue Recognition, section 1.6, “Step 3: Determine the Transaction Price” (ASC 606-10-32-6 and 606-10-32-11). DART. dart.deloitte.com/USDART/home/codification/revenue/asc606-10…
  4. Deloitte. Roadmap: Revenue Recognition, section 1.8, “Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation” (control, the over-time criteria and ASC 606-10-25-30). DART. dart.deloitte.com/USDART/home/codification/revenue/asc606-10…
  5. Deloitte. Roadmap: Revenue Recognition, section 8.4, “Revenue Recognized Over Time” (ASC 606-10-25-27). DART. dart.deloitte.com/USDART/home/codification/revenue/asc606-10…
  6. Deloitte. Roadmap: Revenue Recognition, section 14.4, “Contract Assets” (ASC 606-10-45-3). DART. dart.deloitte.com/USDART/home/codification/revenue/asc606-10…
  7. PwC. Revenue from contracts with customers guide, section 8.2, “Rights of return” (ASC 606-10-55-23). Viewpoint. viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/revenue_fro…
  8. Franklin, M., Graybeal, P. & Cooper, D. (2019). Principles of Accounting, Volume 1: Financial Accounting, section 6.4, “Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System” (sales returns and allowances, sales discounts). OpenStax. openstax.org/books/principles-financial-accounting/pages/6-4…
  9. Australian Accounting Standards Board. Compiled AASB 102 Inventories (compiled 31 December 2021), which incorporates IAS 2 with its paragraph numbering; paragraphs 9, 10, 11, 16, 25, 28, 33 and 34. Federal Register of Legislation. legislation.gov.au/F2015L01624/2021-12-31/2021-12-31/text/or…
  10. International Accounting Standards Board. Basis for Conclusions on IAS 2 Inventories (revised December 2003): the elimination of LIFO. Published by the External Reporting Board (New Zealand). xrb.govt.nz/dmsdocument/6029
  11. Financial Accounting Standards Board (2015). Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASC 330-10-35-1B and 35-1C; effective dates). Full text on PwC Viewpoint. viewpoint.pwc.com/dt/us/en/fasb_financial_accou/asus_fulltex…
  12. PwC. Inventory guide, section 3.8.3, “LIFO: reversal of valuation reserves” (quotes ASC 330-10-35-14). Viewpoint. viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/inventory/I…
  13. United States Code, title 26, §472, “Last-in, first-out inventories” (subsections (c) and (e)). GovInfo, US Government Publishing Office. govinfo.gov/content/pkg/USCODE-2021-title26/html/USCODE-2021…
  14. Australian Accounting Standards Board. Compiled AASB 101 Presentation of Financial Statements (compiled 31 December 2022), which incorporates IAS 1 with its paragraph numbering; paragraphs 82, 99, 102, 103 and 104. Federal Register of Legislation. legislation.gov.au/F2015L01626/2022-12-31/2022-12-31/text/or…
  15. United States Code, title 26, §11, “Tax imposed” (subsection (b): 21 percent of taxable income), with the note on Pub. L. 115-97, §13001. Office of the Law Revision Counsel, current through Pub. L. 119-120. uscode.house.gov/us/usc/119-120/t26/s11
  16. Code of Federal Regulations, title 17, §244.100, “General requirements” (Regulation G). Legal Information Institute, Cornell Law School. law.cornell.edu/cfr/text/17/244.100
  17. US Securities and Exchange Commission, Division of Corporation Finance. Non-GAAP Financial Measures: Compliance and Disclosure Interpretations, Questions 102.10, 103.01 and 103.02. Last updated 13 December 2022. sec.gov/divisions/corpfin/guidance/nongaapinterp.htm
  18. Deloitte. Roadmap: Impairments and Disposals of Long-Lived Assets and Discontinued Operations, section 6.3, “Income Statement Presentation for Disposals That Are Not Discontinued Operations” (quotes ASC 360-10-45-5). DART. dart.deloitte.com/USDART/home/codification/presentation/asc2…
  19. Deloitte. Roadmap: Earnings per Share, section 2.1, “General” (scope of ASC 260, quoting ASC 260-10-15-2). DART. dart.deloitte.com/USDART/home/codification/presentation/asc2…
  20. Financial Accounting Standards Board (2016). Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. storage.fasb.org/ASU%202016-13.pdf
  21. Financial Accounting Standards Board (2025). Accounting Standards Update No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. storage.fasb.org/ASU%202025-05.pdf
  22. Internal Revenue Service. Topic no. 453, Bad debt deduction. irs.gov/taxtopics/tc453
  23. Financial Accounting Standards Board (2019). Accounting Standards Update No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. storage.fasb.org/ASU%202019-10.pdf
  24. Financial Accounting Standards Board (2009). Accounting Standards Update No. 2009-01, Topic 105—Generally Accepted Accounting Principles, paragraph 105-10-05-6 (“The provisions of the Codification need not be applied to immaterial items.”). Full text reproduced on PwC Viewpoint. viewpoint.pwc.com/dt/us/en/fasb_financial_accou/asus_fulltex…
  25. European Union. Commission Regulation (EU) 2023/1803 adopting international accounting standards, consolidated version of 8 March 2026, Annex: IFRS 9 Financial Instruments, paragraph 5.5.15 (simplified approach for trade receivables). eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02023R1803…
  26. IFRS Foundation. IAS 36 Impairment of Assets, standard summary. ifrs.org/issued-standards/list-of-standards/ias-36-impairmen…
  27. Deloitte. A Roadmap Comparing IFRS Accounting Standards and US GAAP, section 1.6, “Property, Plant, and Equipment”. DART. dart.deloitte.com/USDART/home/publications/deloitte/addition…
  28. Deloitte. Roadmap: Goodwill and Intangible Assets, sections 1.2, “History of the Goodwill Impairment Model and Related Standard-Setting Activity” (including the private-company alternative of ASU 2014-02), and 2.5, “When to Test Goodwill for Impairment” (reproduces ASC 350-20-35-28). DART. dart.deloitte.com/USDART/home/codification/assets/asc350-20/…
  29. Internal Revenue Service. Publication 946, How To Depreciate Property (2025). irs.gov/publications/p946
  30. United States Patent and Trademark Office. Manual of Patent Examining Procedure, section 2701, “Patent Term”. uspto.gov/web/offices/pac/mpep/s2701.html
  31. Accounting Today (3 August 2026). “FASB adds project on goodwill impairment” (the Board’s decision of 29 July 2026). accountingtoday.com/news/fasb-adds-project-on-goodwill-impai…
  32. Deloitte. Roadmap: Issuer’s Accounting for Debt, section 13.3, “General” (balance sheet classification; reproduces ASC 210-10-45). DART. dart.deloitte.com/USDART/home/codification/liabilities/asc47…
  33. European Union. Commission Regulation (EU) 2023/1803 of 13 August 2023 adopting international accounting standards, Annex: IAS 1 Presentation of Financial Statements, paragraphs 57–76. Official Journal L 237. eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32023…
  34. European Union. Commission Regulation (EU) 2023/2822 of 19 December 2023 amending Regulation (EU) 2023/1803 as regards IAS 1 (classification of liabilities as current or non-current), paragraphs 69(d) and 139U. Official Journal L. eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32023…
  35. BDO (June 2026). IFRS 18: Classification of Loans as Current or Non-current. IFRS Accounting Standards in Practice (the IAS 1 requirements as carried into IFRS 18, with a concordance of paragraphs). bdo.global/getmedia/b8866082-2b56-4ed8-9df2-600f56d20d1a/IFR…
  36. IFRS Foundation. IFRS 18 Presentation and Disclosure in Financial Statements, standard summary (effective for annual reporting periods beginning on or after 1 January 2027; replaces IAS 1). ifrs.org/issued-standards/list-of-standards/ifrs-18-presenta…
  37. State of Delaware. Delaware Code, Title 8 (General Corporation Law), chapter 1, subchapter V, sections 153–154 (consideration for stock; capital and surplus). delcode.delaware.gov/title8/c001/sc05/index.html
  38. IFRS Foundation. IAS 7 Statement of Cash Flows: standard summary page (cash equivalents, the direct and indirect methods, noncash transactions, the IFRS 18 amendments). ifrs.org/issued-standards/list-of-standards/ias-7-statement-…
  39. KPMG LLP (2026). Statement of cash flows: Handbook, US GAAP (March 2026), reproducing ASC 230-10-45-13 to 45-17, 45-25 and 50-3 to 50-6. kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2026/statement-cas…
  40. Ernst & Young LLP (2025). Financial reporting developments: Statement of cash flows (May 2025): ASC 230-10-20 (cash equivalents), 230-10-45-4, 45-5 and 45-25, and practice on the direct and indirect methods. ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/ac…
  41. Australian Accounting Standards Board (2023). Compiled AASB Standard AASB 107 Statement of Cash Flows, compiled 31 December 2023. AASB 107 incorporates IAS 7 as issued by the IASB, with the same paragraph numbers; this is the text before IFRS 18 (paragraphs 6–8, 18–19, 31–35 and 43). aasb.gov.au/admin/file/content105/c9/AASB107_08-15_COMPjun23…
  42. Australian Accounting Standards Board. AASB 107 Statement of Cash Flows, “Interest and dividends”, paragraphs 31–34D (compilation of September 2024, including the amendments made with AASB 18, the Australian IFRS 18). standards.aasb.gov.au/node/6600
  43. Deloitte. A Roadmap Comparing IFRS Accounting Standards and US GAAP, section 4.3, “Statement of Cash Flows” (interest and dividends, bank overdrafts, the reconciliation under each framework). DART. dart.deloitte.com/USDART/home/publications/deloitte/addition…
  44. Boissou, V. & Ahuja, K. (2026). “IFRS 18 changes the statement of cash flows”. KPMG IFRS Institute, 1 June 2026 (effective date, the indirect method’s new starting point, interest and dividends). kpmg.com/us/en/articles/2026/ifrs-18-changes-statement-cash-…
  45. Deloitte. Roadmap: Statement of Cash Flows, section 3.1, “Form and Content of the Statement of Cash Flows” (ASC 230-10-45-28 to 45-32 and 50-2). DART. dart.deloitte.com/USDART/home/codification/presentation/asc2…
  46. KPMG LLP (2026). Statement of cash flows: Handbook, US GAAP (March 2026), including ASC 230-10-45-13(c) on debt incurred to the seller and 45-15(b) on repayments. kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2026/statement-cas…
  47. US Securities and Exchange Commission. Beginners’ Guide to Financial Statements (“Cash Flow Statements” and “Bringing It All Together”). sec.gov/about/reports-publications/beginners-guide-financial…
  48. IFRS Foundation (2024). Project Summary: IFRS 18 Presentation and Disclosure in Financial Statements, April 2024 (categories, required subtotals, management-defined performance measures, specified expenses by nature, IAS 7 amendments, effective date). ifrs.org/content/dam/ifrs/project/primary-financial-statemen…
  49. Financial Accounting Standards Board (2024). Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), November 2024. storage.fasb.org/ASU%202024-03.pdf
  50. Deloitte. Roadmap: Comparing IFRS Accounting Standards and U.S. GAAP: Bridging the Differences, sections 1.4 Inventories, 1.5 Intangible Assets, 1.6 Property, Plant, and Equipment, 4.3 Statement of Cash Flows and 5.7 Leases. DART (2026). dart.deloitte.com/USDART/home/publications/deloitte/addition…
  51. IAS 38 Intangible Assets, paragraph 71, as reproduced in Australian Accounting Standards Board, AASB 138 Intangible Assets, paragraph 71, “Recognition of an expense”. standards.aasb.gov.au/node/954
  52. Internal Revenue Service, Large Business and International Division. Adopting LIFO, concept unit COR-C-014 (last updated 12 May 2020), on the LIFO conformity requirement. irs.gov/pub/fatca/int_practice_units/cor_c_014.pdf
  53. FASB and IASB (2002). Memorandum of Understanding: “The Norwalk Agreement”, 18 September 2002. ifrs.org/content/dam/ifrs/around-the-world/mous/norwalk-agre…
  54. IFRS Foundation. Use of IFRS Accounting Standards by jurisdiction: United States (profile last updated 4 April 2025). ifrs.org/content/ifrs/home/use-around-the-world/use-of-ifrs-…