Financial Statements
Financial Statements
Financial Statements
PURPOSE
To report the business financial
performance and position to external
users of accounting information
Reflects the transactions of the
business
Assists in determining underlying
trends in the financial position of the
BALANCE SHEET
BALANCE SHEET
Presents the financial position of an entity at a given
date.
Helps users to assess the financial soundness of an
entity in terms of liquidity risk, financial risk, credit
risk and business risk.
Comprised of three main components:
Assets
Liabilities
Equity
ASSETS
Something that an entity owns or controls in order
to derive economic benefits from its use.
Classified as current or non-current depending on
the duration over which the entity derives
economic benefit from its use.
Non-current, expected to be realized over a long term.
Examples are properties, land, equipment, goodwill, etc.
Current, expected to be realized within one year.
Examples are cash, inventories, receivables, etc.
LIABILITIES
It is an obligation that a business owes to someone.
Its settlement involves transfer of cash or other resources.
Classified as current or non-current depending on the
duration over which the entity intends to settle the
liability.
Non-current, expected to be settled over a long term. Examples
are long term borrowings and bonds.
Current, expected to be settled within one year. Examples are
short-term borrowings, cash and trade payables, tax payables,
etc.
EQUITY
It is what the business owes to its owners.
It is derived by deducting total liabilities from the total
assets.
It represents the residual interest in the business that
belongs to owners.
Present under the following categories:
Share Capital represents the amount invested by the owners in
the entity.
Retained Earnings comprises the total net profit or loss retained
in the business (after distribution of dividends)
INCOME STATEMENT
INCOME STATEMENT
It is a report of income, expenses and the
resulting profit or loss earned during an
accounting period.
Provides the basis for measuring performance of
an entity over the course of an accounting period.
Change in sales revenue in comparison to industry
Change in gross profit margin, operating profit margin
and net profit margin
Comparison of the entitys profitability with other
organizations
REVENUE
COST OF SALES
OTHER INCOME
ADMINISTRATIVE EXPENSES
FINANCE CHARGES
OPERATING ACTIVITIES
Preparation
Starting point would be the profit before tax in the
income statement
Elimination of non-cash expenses
Removal of expenses to be classified elsewhere in the
cash flow statement (i.e. interest expense)
Elimination of non-cash income
Removal of income to be presented elsewhere in the
statement (i.e. interest income)
Working capital charges
INVESTING ACTIVITIES
Preparation:
Cash outflow expended on the purchase
of investments and fixed assets
Cash inflow from income from
investments
Cash inflow from disposal of
investments and fixed assets
FINANCING ACTIVITIES
This includes the following:
Proceeds from issuance of share capital,
debentures and bank loans
Cash outflow expended on the cost of
finance
Cash outflow on the repurchase of share
and repayment of debentures and loans
STATEMENT OF CHANGES IN
EQUITY
NOTES TO FINANCIAL
STATEMENTS
THANK YOU.