# Statement semantics > What each statement means, how it's structured, and what the components must therefore enforce. Source: https://lopifi.com/docs/domain/03-statement-semantics Part of: Lopifi — US GAAP books on autopilot, reviewed by a CPA (https://lopifi.com) --- # Statement semantics What each statement means, how it's structured, and what the components must therefore enforce. --- ## 1. The three statements, and how they connect They are not three reports. They are three views of one set of facts, and they tie to each other. A product that renders them without proving the ties is rendering three unrelated tables. ``` P&L Balance Sheet Cash Flow ───── ───────────── ───────── Net income ──────────────→ Retained earnings └──────────────────────────────────────────────────→ (starting point, indirect method) Cash ←───────────────────── Ending cash ``` **The three articulations Lopifi asserts and displays:** 1. **Net income → retained earnings.** `Opening RE + Net income − Dividends = Closing RE` 2. **Cash flow → balance sheet cash.** `Opening cash + Net change in cash = Closing cash`, and closing cash, cash equivalents and restricted cash equal the balance sheet lines that hold them. 3. **The accounting equation.** `Assets = Liabilities + Equity` Each is rendered as a visible check, not assumed. When one fails, that is the primary state of the screen — a balance sheet that doesn't balance is not a balance sheet with a small problem, it's not a balance sheet. --- ## 2. Profit & loss ### Structure ``` Revenue ← gross less: Returns, allowances, discounts ← contra-revenue Net revenue ← subtotal, single rule Cost of revenue / COGS ══ Gross profit ══ ← subtotal + margin % Operating expenses Sales & marketing Research & development General & administrative ══ Operating income ══ ← subtotal + margin % Other income / (expense) Interest income Interest expense FX gain / (loss) ══ Income before tax ══ Income tax expense ══ Net income ══ ← double rule ``` ### Rules the component enforces - **Margin rows are `Percent`, not `Money`**, and visually distinguished. A percentage in a column of dollars must not look like dollars. - **Expense lines are `polarity="inverted"`.** An increase in COGS is not good news. This is the default for every account classified as an expense, and it's read from the account type, not chosen by the caller. - **Contra-revenue is indented under revenue and parenthesized**, netting to a "Net revenue" subtotal. Never shown as a separate expense. - **Gross profit requires a COGS classification.** If the chart of accounts has no COGS, the component omits the gross profit subtotal rather than showing a gross margin equal to revenue, which is a lie by omission. - **Expense captions will need a breakdown.** ASU 2024-03 (ASC 220-40) requires public business entities, for annual periods beginning after 15 December 2026, to disaggregate relevant expense captions in a footnote into purchases of inventory, employee compensation, depreciation, intangible amortization and other — so the account-to-line mapping must carry a natural classification as well as a functional one. - **Segments follow the CODM.** ASU 2023-07 (ASC 280) requires public entities to disclose, by reportable segment, the significant expenses regularly provided to the chief operating decision maker — again a dimension pivot, not a separate ledger. - **EBITDA is not a P&L line.** It's non-GAAP. If shown, it appears below net income in a clearly separated reconciliation block — see [metrics](10-metrics.md#ebitda). --- ## 3. Balance sheet ### Structure ``` ASSETS Current assets Cash and cash equivalents Accounts receivable, net ← net of allowance (contra) Inventory Prepaid expenses ══ Total current assets ══ Non-current assets Property, plant & equipment, net ← net of accumulated depreciation Right-of-use assets Intangible assets, net ══ Total non-current assets ══ ══ TOTAL ASSETS ══ ← double rule LIABILITIES Current liabilities Accounts payable Accrued liabilities Deferred revenue, current Current portion of long-term debt ← the reclass line, see below ══ Total current liabilities ══ Non-current liabilities ══ Total liabilities ══ EQUITY Common stock and APIC Retained earnings Accumulated other comprehensive income ← CTA lives here ══ Total equity ══ ══ TOTAL LIABILITIES AND EQUITY ══ ← double rule ``` ### Rules - **It is an "as of" a date, not a period.** `BalanceSheet` takes a `Date`, never a range. A balance sheet labeled "September 2026" is a category error the type system prevents. - **The balance check is a first-class UI element.** `Assets 4,281,900 = Liabilities 1,840,200 + Equity 2,441,700 ✓`. When it fails, the difference is stated prominently — never a silently unbalanced statement. - **Current/non-current split is the norm.** IFRS requires it unless a liquidity-order presentation is more reliable (IAS 1, carried into IFRS 18 from 2027); US GAAP permits unclassified balance sheets in some industries. Classification comes from the account, and the boundary — twelve months, or the operating cycle if longer — is measured from the as-of date, not from today. - **The current-portion reclass is visible.** Long-term debt maturing within twelve months moves to current liabilities. A user seeing a large jump in current liabilities needs to see that it's a reclass, not new borrowing — so the line is named explicitly, not merged into "Other current". - **Ordering follows the framework.** US GAAP: most liquid first. IFRS: commonly least liquid first. `framework` prop drives it. - **Retained earnings ties to the P&L.** The component asserts `Opening RE + Net income − Distributions = Closing RE` and surfaces the reconciliation on hover or drill-down. --- ## 4. Cash flow statement The statement most products skip, and the one lenders and boards actually read. ### Indirect method (the common one) ``` Net income ← from the P&L Adjustments to reconcile to cash: Depreciation and amortization ← non-cash, added back Stock-based compensation ← non-cash Provision for credit losses ← non-cash (Gain) / loss on disposal ← non-cash, sign flipped Changes in operating assets and liabilities: (Increase) / decrease in AR ← note the sign convention (Increase) / decrease in inventory Increase / (decrease) in AP Increase / (decrease) in deferred revenue ══ Net cash from operating activities ══ ══ Net cash from investing activities ══ ← capex, acquisitions, disposals ══ Net cash from financing activities ══ ← debt principal, equity, dividends paid ══ Net change in cash ══ Cash at beginning of period ══ Cash at end of period ══ ← MUST equal the BS cash lines ``` ### Rules - **The working-capital sign convention is inverted and it confuses everyone.** An *increase* in AR is a *use* of cash — money you earned but haven't collected — so it appears as a negative. The component labels these lines `(Increase) / decrease in …` exactly as shown, because the parenthetical is what makes the sign readable. - **Ending cash must equal the balance sheet.** Cash, cash equivalents and restricted cash (ASC 230 after ASU 2016-18) tie to the lines that hold them, with a reconciliation when they sit on more than one line. Asserted and displayed. This is the single most useful integrity check in the whole statement family. - **Non-cash adjustments must trace to real accounts.** D&A on the cash flow ties to the depreciation and amortization posted in the period. - **Interest and dividends are classified by the standard, not by intuition.** Under US GAAP, interest paid, interest received and dividends received are operating (ASC 230-10-45-16, -45-17); dividends paid are financing (ASC 230-10-45-15). Only debt *principal* sits in financing. IAS 7 allows a policy choice — narrowed by IFRS 18 from 2027 — so `framework` drives classification, never a per-line toggle. - **Direct method is supported but requires a reconciliation** to the indirect result, because US GAAP requires that reconciliation for disclosure anyway (IFRS does not). - **Free cash flow is not a GAAP line.** If shown, it's below the statement in a labeled non-GAAP block with its definition stated — see [metrics](10-metrics.md). --- ## 5. Supporting statements | Statement | What it shows | Component | |---|---|---| | **Trial balance** | Every account, debit and credit columns, proving they're equal | `TrialBalance` | | **Statement of equity** | Opening equity → net income → issuances → distributions → OCI → closing | `EquityRollForward` | | **AR aging** | Receivables by bucket, tying to the AR control account | `AgingTable` | | **AP aging** | Payables by bucket, tying to the AP control account | `AgingTable` | | **Fixed asset register** | Cost, accumulated depreciation, NBV, by asset | `ScheduleTable` | **Every supporting statement ties to a control account on the balance sheet, and the tie is displayed.** An AR aging that totals to something other than the AR balance means either the aging or the ledger is wrong, and finding out at audit is expensive. --- ## 6. Comparatives - **Comparatives must match on five axes**: basis, framework, entity set, presentation currency, and period type. Mixing is blocked at the type level, not warned about at render. - **Every column states its own resolved period.** No column is ever labeled "Prior" or "Current". - **A restated comparative is labeled "Restated"** in the column header with a footnote naming the reason. Always. See [periods & close](02-periods-and-close.md#9-restatement). - **Reclassified prior-period figures are disclosed.** If this year's presentation moved a line, the comparative moved too, and that must be stated — otherwise the variance is an artifact of presentation, not performance. --- ## 7. Variance and flux analysis The reviewer's actual job at close: explain what moved and why. ```ts type Variance = { current: Money; comparative: Money; absolute: Money; relative: PercentChange; // discriminated — see numerics material: boolean; // BOTH thresholds exceeded explanation?: { text: string; author: string; at: Date; driver?: "volume" | "price" | "mix" | "timing" | "one-off" | "error"; }; }; ``` **Rules:** - **A variance with no comparative base renders `n/a`, never `100%` or `∞`.** Growth from zero is genuinely unknowable. - **Material variances require an explanation** before the review section of the close can be gated as done. Unexplained material variances are the reviewer's worklist. - **The driver taxonomy matters.** "Revenue up 12%" is not an explanation; "volume up 18%, price down 5%, mix neutral" is. `FluxAnalysis` prompts for a driver, not just free text. - **Both absolute and relative are shown.** Either alone misleads: 200% on $12, or $40,000 on $8M. - **The materiality threshold in force is displayed**, so a reviewer knows what is being hidden from them. --- ## 8. Presentation and rounding - **Statements are commonly presented in thousands or millions.** When they are, the header says so — "in thousands, except per-share amounts" — and it is not optional. `StatementTable` takes a `scale` prop and renders the disclosure automatically. - **Rounded statements still foot.** Round once at the display boundary and use largest-remainder allocation so subtotals equal the sum of their rounded parts. See [numerics](../foundations/06-numerics.md#6-rounding). - **When a rounded column genuinely cannot foot, disclose it.** A `† Amounts may not sum due to rounding` footnote beats a total that's off by one with no explanation. - **Per-share amounts are never scaled.** In a statement presented in thousands, EPS stays in dollars and cents, which is why the disclosure says "except per-share amounts". --- ## 9. Statement header — required fields Every statement, on screen, in export, and in print, carries all of these. A statement missing any of them is not usable as evidence. ``` Northwind Holdings Ltd. and subsidiaries ← entity / consolidation scope Consolidated Statement of Profit or Loss ← statement name (framework-aware) For the three months ended 30 September 2026 ← resolved period, or "As at" for a BS Accrual basis · IFRS · Presented in USD ← basis, framework, currency In thousands, except per-share amounts ← scale, when scaled Generated 4 Oct 2026 09:12 UTC · Period: closed ← provenance and period state ``` This block is a component (`StatementHeader`), not per-page markup, precisely so it cannot be forgotten.