Understanding Financial Statements Basics
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ScribdTranslationsBolivarian Republic of Venezuela
Bicentennial University of Aragua
Faculty of Administrative and Social Sciences
Aragua-Venezuela
Financial Statements
As Financial Information
Participant:
Naiglyn Villegas
C.I V-17198374
Prof: Ana Medina
Turmero, July 11, 2020.
Introduction
To achieve efficient financial management, all departments of a
the company should use and provide data to have a deep understanding of the
business operation. One of the functions of the financial director is to analyze them and
transform them into useful information for the different areas of the company to evaluate their
performance against what they had projected and, from there, make decisions to
correct or improve the objectives of the corporate strategy.
Companies should maintain detailed information about various aspects
keys to successful financial management. For example, one must have at least
financial statements, cash flow, inventories, and accounts payable and receivable, for
achieve financial management under control.
The financial statements demonstrate the key aspects of the performance of
any company. Moreover, this information is not only relevant for creditors and
potential investors, but also for the company's own management.
Comparing these figures and trends with those of competitor companies can
be a key aspect to define the overall corporate strategy. In many cases, the
careful analysis of financial indicators can determine long-term viability
deadline of the venture.
The financial statements
Thefinancial statements they are thedocumentswhat should be preparedthe company to the
complete the accounting exercise in order to know the financial situation and the
economic results obtained in the activities of yourcompanythroughout a
period.
Financial Statements are useful for users as they contain data
which are complemented by other information such as; the conditions of the
market in which it operates, allow diagnosing the policies to follow considering
new trends (limitations of financial statements). Likewise, it is said that for
the presentation of the financial statements must consider real information to be
more accurate with the results.
Characteristics of financial statements
Financial information must meet certain qualitative characteristics
in order to ensure the achievement of its objectives and, consequently
to ensure its effectiveness in use by its different recipients
(users).
The characteristics that financial statements must meet are:
1. Comprehensibility: the information must be easily understandable for everyone.
users, however notes must also be added that allow for understanding of
complex topics for decision making.
2. Relevance / systematization: the information will be of relative importance when it is
presenting that information and omitting it by mistake can harm and influence the
decisions made.
3. Reliability: the information must be free from material errors, it must be neutral.
and prudent, so that it can be useful and convey the necessary trust to users.
4. Comparability: this information must be presented in accordance with the standards and
accounting policies, in such a way that allows for easy comparison with previous periods
to know the trend, and it will also allow comparison with other companies.
5. Belonging: It must meet the needs of the users.
Requirements:
Integrity: All necessary data must be included for your objectives to be met.
achieved.
Impartiality: They must prepare according to the norms and principles of the
generally accepted accounting.
Veracity: The balances reflected in the balance sheet or in the profit and loss statement are
truthful and precise
Regulation: Explain that the accounts in the balance sheet and other financial statements are
arranged according to generally accepted accounting principles.
Comparability: They must be comparable across periods of the same
company and different companies
Theutilityof theinformationaccountant
The information presented in the financial statements is of interest to:
Theadministration, for thedecision making, after knowing the
performance, growth anddevelopmentof the company over a period
determined.
The owners to know the financial progress of the business and
theprofitabilityof their contributions.
Creditors, to understand the liquidity of the company and the guarantee of
compliance with yourobligations.
Thestate, to determine if the payment of thetaxesand contributions this is
correctly settled.
Importance of Financial Statements
Financial statements are important because they are serious and valid documents.
official (as long as they are done with someone with the proper authorization) that
allow having a very organized idea about finances. They help not only to see the
past, if not to learn from this to improve next year. They allow to see in a way
clear and effective in what was saved and what was spent.
Classification
The basic financial statements are:
The balance sheet
The income statement
The statement of cash flows
Balance sheet
It is the accounting document that reports on a specific date the situation
financial status of the company, presenting it clearlyvalueof their properties
yrights, their obligations and theircapital, evaluated and prepared according to
theprinciples of accountinggenerally accepted.
Only the appear in the [Link] and itsvaluesmust correspond
exactly to the adjusted balances of thebookgreater andbooksassistants.
Thebalance sheetit must be prepared at least once a year and dated as of 31
December, signed by those responsible:
Counter
Fiscal auditor
Manager
When it comes tosocietiesIt must be approved by the general assembly.
Onstructureis presented below:
Income statement or profit and loss statement
It is a supplementary document where information is provided in detail and in an orderly manner.
how the profit of the accounting exercise was obtained.
Theincome statementit is composed of nominal, temporary or
of results, that is the accounts ofincome, expensesycosts. The values must
to correspond exactly to the values that appear in the general ledger and its auxiliaries,
or the values that appear in the profit and loss section of the sheetwork.
Elements of the financial statements:
The elements of the financial statements are assets, liabilities, and equity.
what constitutes the balance sheet or statement of financial position, and
income, costs and expenses that make up the income statement.
The asset is equal to the sum of liabilities and equity:
The accounts of income, costs, and expenses correspond to the income statement, and
its differentiated origin to a gain or loss
What are the basic financial statements?
a. Statement of financial position.
b. Statement of comprehensive income (a separate statement can also be presented)
of results and a comprehensive income statement -ORI-.
c. Statement of changes in equity.
d. Statement of cash flows.
e. Notes to the financial statements (must include a summary of accounting policies
significant and any other explanatory information).
Audited financial statements
They are those who have gone through aprocessof review and verification of the
information; this examination is carried out by independent public accountants who
they finally express an opinion about the financial situation, the results of
operation and cash flow that the company presents in its financial statements of a
specific exercise.
Method offinancial statement analysisand hisinterpretation
By means of thesemethodswe can understand the order that is followed to
separate and understand the descriptive and numerical elements that comprise the content of
the financial statements.
There are several methods to analyze the content of financial statements, without
embargo considering the technique of comparison, we can classify them as
non-limiting declarative form such as:
Method ofanalysisverticalprocedureby hundredsintegrals, reasons
simple and standard ratios. It is applied to analyze a financial statement at a fixed date or
corresponding to a specific period.
Horizontal analysis method: procedure of increases and decreases. It
they apply to analyze two financial statements of the same company at different dates
or corresponding to two periods or fiscal years.
Historical analysis method: procedure of trends, which for effects
The comparison can be presented based on figures or values, variations and
indexes. It is applied to analyze a series of financial statements of the same company
to different dates or periods.
Projected analysis method: it is applied to analyze financial statements
form orbudgets.
Presentation of Financial Statements
In the form of a report: at the top the income, then downwards.
the expenses and in the end in the same direction, the result obtained.
In the form of an account: income on the left and expenses and results on the right.
Practices that non-profit entities tend to adopt.
The body of the Statement of Financial Position can be presented in the form of an Account
In horizontal format, the asset and its values are presented on the left side; on its right
passive and capital and their respective values. Reporting Format or Vertical, in first
end of the Asset and its values, immediately and downwardssamplethe Passive and the
Capital and its values.
Short and long-term financial situation
Thequalityabout the short-term financial situation of a company this
determined by the characteristics of the elements that compose it.
Within the study of the Balance Sheet, it has been observed how theassetsand liabilities
which are shown in the same are distinguished by a temporal circumstance that them
characterizes as short or long term, and this applies to both assets and the
liabilities.
Projected financial statement
It is a financial statement for a future date or period, based on calculations.
estimated transactions that have not yet been completed; it is an estimated status that
often accompanies abudgeta proforma statement.
Inflation-adjusted financial statements
When making inflation adjustments to the financial statements, it is necessary to take into account
count the indices ofpricesin force at that time.
Not only should the states adjust to the new price levels.
current financials, but also of the previous years, in order to be able to
obtain aimagemore accurate financial data of the company.
When talking about adjusting suchreportsit refers to the levels of
current prices, which means having to adjust them all according to the indices
price averages of the last year. This provides more realistic Financial Statements.
and adjusted to reality, while showing a surplus or retained earnings
much more realistic and reliable.
Current inflation is a phenomenon that affects the entire world, it is not known
another alternative to combat it, which increases theproductivity, in order to increase
also theofferofproductsin themarket, which in turn is the most effective remedy
effective in bringing down prices.
Reports or reports
The cost department has to provide different reports,
adapting them to the needs of the entity ofaddress. Forto be ableindicate in what way
must surrender areportIt is necessary to take into account beforehand who is going to
address, who will have to use a specific report, what are the needs
particulars of saidpersonto what extent are the nomenclatures and the
technique of theaccountingin order to provide you precisely with theclassof information
that may be more useful to him.
Objectives of financial statements
The income statement is a basic financial statement that presents information
relevant regarding the operations carried out by the entity during a period
determined. Through the determination of net income and the identification of its
the results of the achievements reached and the efforts made by a
entity during the period stated in the same state.
This information is useful mainly for combining it with that of the
other basic financial statements, can be:
Evaluate the profitability of a company.
Estimate your credit potential.
Estimate the amount, time, and certainty of a cash flow.
Evaluate the company's performance.
Measure risks.
Distributing dividends Its integral elements are:
Income.
Costs.
Expenses.
Earnings.
Losses.
Net utility, net loss.
Practical case
With the data presented below, the financial statements
basics of the company called 'Enevalca, C.A', corresponding
from January 1 to December 31, 2015
Creditors Bs. 5,000.00
Product rentals Bs. 5,000.00
Cash and banks Bs. 148,150.00
Clients Bs. 24,500.00
purchases Bs. 50,000.00
Recovered credits Bs. 5,000.00
Bad debts Bs. 3,135.00
Employer's administrative fee Bs. 1,200.00
Employer contribution for sellers Bs. 1,080.00
Accumulated depreciation buildings Bs. 14,000.00
Accumulated depreciation
tools Bs. 8,000.00
Accumulated depreciation Mob and
Team Bs. 8,000.00
Accumulated depreciation vehicles Bs. 9,000.00
Depreciations and amortizations Bs. 39,000.00
Returns and discounts on
purchases Bs. 3,000.00
Returns and discounts on
sales Bs. 5,000.00
Documents receivable Bs. 60,000.00
Documents payable Bs. 33,000.00
Buildings Bs. 280,000.00
Tools Bs. 80,000.00
Mortgages Bs. 30,000.00
Final inventory of goods Bs. 120,000.00
Initial inventory of goods Bs. 170,000.00
VAT payable Bs. 3,150.00
Furniture and equipment Bs. 40,000.00
Stationery and consumables Bs. 4,000.00
Stationery and supplies in stock Bs. 3,000.00
Loss in asset negotiation Bs. 2,300.00
Labor benefits
administration Bs. 2,916.00
Accrued labor benefits Bs. 5,840.00
Labor benefits for sellers Bs. 2,624.00
Long-term loans Bs. 30,000.00
Suppliers Bs. 30,000.00
Provision for bad debts Bs. 3,135.00
Prepaid insurance Bs. 2,000.00
Expired insurance Bs. 4,000.00
Mrs. Salguero capital account Bs. 269,780.00
Salaries of salespeople Bs. 9,000.00
Salaries of administration Bs. 10,000.00
Land Bs. 60,000.00
Vehicles Bs. 45,000.00
Gross sales Bs. 585,000.00
STATEMENT OF RESULTS
COMPANY "Enevalca. C.A"
FROM JANUARY 1 TO DECEMBER 31, 2015
Sales Movement
Gross sales Bs. 585,000.00
Returns and discounts on
sales Bs. 5,000.00 Bs. 580,000.00
COST OF SALES
Initial inventory of
merchandise Bs. 170,000.00
Purchases Bs. 50,000.00
Returns and discounts on
purchases Bs. 3,000.00 Bs. 47,000.00
Availability Bs. 217,000.00
Final inventory of
merchandise Bs. 120,000.00
Cost of Sales Bs. 97,000.00
Profit margin in sales Bs. 483,000.00
OPERATING EXPENSES
Distribution Expenses
Salaries of salespeople Bs. 9,000.00
Employer's contribution for sellers Bs. 1,080.00
Labor benefits
sellers Bs. 2,624.00 Bs. 12,704.00
Administrative Expenses
Administration salaries Bs. 10,000.00
Employer contribution of
administration Bs. 1,200.00
Labor benefits
administration Bs. 2,916.00
Depreciations and
amortizations Bs. 39,000.00
Uncollectible accounts Bs. 3,135.00
Stationery and consumables Bs. 4,000.00
Expired insurance Bs. 4,000.00 Bs. 64,251.00
They add up operating expenses Bs. 76,955.00
INCOME AND EXPENSES
FINANCIAL
INCOME
Product rentals Bs. 5,000.00
Recovered credits Bs. 5,000.00 Bs. 10,000.00
EXPENSES
Loss in negotiation of
assets Bs. 2,300.00 Bs. 7,700.00
USEFULNESS OF
EXERCISE Bs. 413,745.00
BALANCE SHEET
COMPANY 'Enevalca, C.A.'
AS OF DECEMBER 31, 2015
ACTIVE
CURRENT
Final inventory of merchandise Bs. 120,000.00
Stationery and supplies in stock Bs. 3,000.00
Documents receivable Bs. 60,000.00
Clients Bs. 24,500.00
Provision for accounts
uncollectible Bs. 3.135,00 Bs. 21.365,00
Insurance paid by
anticipated Bs. 2,000.00
Cash and banks Bs. 148,150.00 Bs. 354,515.00
NO CURRENT
Lands Bs. 60,000.00
Buildings Bs. 280,000.00
Accumulated depreciation
buildings Bs. 14.000,00 Bs. 266.000,00
Vehicles Bs. 45,000.00
Accumulated depreciation
vehicles Bs. 9.000,00 Bs. 36.000,00
Furniture and equipment Bs. 40,000.00
Accumulated depreciation
Mob and Team Bs. 8,000.00 Bs
Tools Bs. 80,000.00
Accumulated depreciation
tools Bs. 8.000,00 Bs. 72.000,00 Bs. 466.000,00
SUM UP THE ASSET Bs. 820,515.00
PASSIVE
CURRENT
Suppliers Bs. 30,000.00
Creditors Bs. 5,000.00
VAT payable Bs. 3,150.00
Documents payable Bs. 33,000.00
Labor benefits for
pay Bs. 5.840,00 Bs. 76.990,00
NO CURRENT
Mortgages Bs. 30,000.00
Long-term loans Bs. 30.000,00 Bs. 60.000,00
Sum the Liabilities Bs. 136.990,00
HERITAGE
Mrs. Salguero capital account Bs. 269,780.00
Profit for the period Bs. 413,745.00
Sum the Heritage Bs. 683,525.00
EQUAL TO Bs. 820,515.00
ACTIVE
Conclusion
In every administration of a company, it is important and necessary the
financial information since it is the basis for a good decision, so that the decision
that it is sufficient and timely for the executives. Financial management
it is the information provided by accounting as it is essential for decision making
decisions of the company.
The need for financial information arises for users, so that
formulate your conclusions about the financial performance of the entity. By this media
the information and other elements of judgment the general user will be able to evaluate the future of
the company and make economic decisions of the company.
The interpretation of the financial statements sufficient about that information
financial, it is about historical and future facts that have related elements.
To relate them, an analysis is needed which consists of applying techniques and
mathematical procedures.
The financial analysis aims to draw conclusions about the
future of the company's activity development, on which it is based with the whole
information that presents the financial status and requires analytical skills.
The need for this information is to create the financial statements, now
that with the financial statements, the financial situation is expressed, result of the
operations and changes in the company's situation.
The importance of a company's financial information, formulates the
conclusions and information about the entity, about how it is doing. For this
general information will allow for the evaluation of the company's future and decision-making,
which benefits the company.
Bibliographic references
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types-of-reports-and-utilities
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