A reporting entity (which we will call “entity” from here onwards) is either a company or a group of companies, which are all controlled by the same decision maker, i.e. normally the same board of directors. This occurs when the board of directors of a company controls directly or indirectly a number of other companies, by holding directly or indirectly the absolute or relative majority of the voting rights of other companies.

Statement of changes in equity: its contents and informational aims

The statement of changes in equity shows a detail of the changes of the equity from the beginning to the end of the year. The main reason for the equity to change is, as explained in section 4.3 above, due to the retained profit contribution to the distributable reserves. However, many other events can affect the equity.

Current Liabilities

The current liabilities section of the balance sheet contains obligations that are due to be satisfied in the near term, and includes amounts relating to accounts payable, salaries, utilities, taxes, short-term loans, and so forth. This casual description is inadequate for all situations, so accountants have developed a very specific definition to deal with more issues.

Long-Term Notes

The previous post Current Liabilities and Employer Obligations illustrations of notes were based on the assumption that the notes were of fairly short duration. Now, let’s turn our attention to longer term notes. A borrower may desire a longer term for their loan. It would not be uncommon to find two, three, five-year, and even longer term notes. These notes may evidence a “term loan,” where “interest only” is paid during the period of borrowing and the balance of the note is due at maturity.

The entries are virtually the same as you saw in the previous chapter. As a refresher, assume that Wilson issued a five-year, 8% term note – with interest paid annually on September 30 of each year:

The Corporate Form of Organization

Corporations are separate legal entities having existence separate and distinct from their owners (i.e., stockholders). In essence, they are artificial beings existing only in contemplation of law. In the United States, a corporation is typically created when one or more individuals file “articles of incorporation” with a Secretary of State in the particular home state in which they choose to become domiciled.

The articles of incorporation will generally specify a number of important features about the purpose of the corporate entity and how general governance of ongoing operations will be structured. After reviewing the articles of incorporation, the Secretary of State will issue a charter (or certificate of incorporation) authorizing the corporate entity to “come into being.”

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