An understanding of how financial statements are structured and how to read them is critical to successfully answering potential exam questions designed to test your knowledge of this subject. Questions regarding financial statements could be conceptual in nature or could require you to calculate one of the many financial ratios that are covered Essentials of Treasury Management 3rd Edition Chapter 5. In either case, if you haven’t had an opportunity to work with financial statements during your professional career, you will need to develop some degree of a working knowledge familiarity with these statements. I suggest that one approach you can use to help you gain this kind of familiarity as you prepare for the exam, is to do a financial statements "walkabout".
That is, assume you are taking a walking tour of the financial statements to increase your understanding of how they are structured and where to find selected financial information if you are faced with a financial ratio calculation on the exam.
For example, let’s do a short "walkabout" in "Balance Sheet Land". The first thing that we discover is that "Balance Sheet Land" is composed of three separate territories which are named; Assets, Liabilities and Equity. As we continue our tour we find that the Assets and Liabilities territories are each separated into two sectors designated as Current and Long Term. Continuing on in the" Current Asset Sector", for example, our "walkabout" reveals that this Sector has certain distinctive landmarks with names like Accountants Receivable and Inventory.
Using the "walkabout" approach for studying the financial statements which breaks down the statements into "Territories" and the sub-units of "Sectors" and/or "Distinctive Landmarks" might help you to better understand and retain this information.
- George Schilling, CTP