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Financial Statements

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8 views

Financial Statements

Uploaded by

m
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Types of

Financial Statements
Income Statement
Income Statement provides financial information regarding the results
of business operations for a given period of time. It is a report that
shows whether or not the business achieved its primary objective of
earning a profit or net income.
An income statement is prepared by listing
• the revenues earned during the period;
• the expenses incurred in earning the revenue;
• and subtracting the expenses from the revenue to determine if a net
income
• or a net loss was incurred.
Income Statement (Natural Form)
The income statement
presentation under this form
arranges all income accounts
in one group, all expense
accounts in another group
and then deducts the total
expenses from the total
income in a single-step
operation of subtraction to
arrive at the final result of
net income or net loss.
Income Statement (Functional Form)
The income statement
presentation under this form
clearly shows specific
sections of income, costs
and expenses in a series of
arithmetic operations. This
form requires that cost of
goods sold and the expenses
be subtracted in steps to
arrive at the net income.
Merchandising businesses
uses this format.
Statement of Equity
Capital Statement or Statement of Owner’s Equity presents a summary of
the changes that occurred in the owner’s equity of the entity during a
specific time period, e.g., month or a year. Increases in owner’s equity
arise from investments by the owner and net income earned. Net loss
and withdrawals for the period causes the owner’s equity to decrease.
Net Income or net loss comes directly from the income statement.

Investments and withdrawals by the owner are capital transactions


between the business and its owner, so they do not affect the income
statement.
Statement of Equity
Balance Sheet
The balance sheet should be prepared following the new accounting
concept of materiality and aggregation, i.e., a separate schedule would
be attached to the report to explain the amounts with corresponding
"notes".

It is also required that a separate statement of changes in equity be


prepared, and therefore, the owner's equity section of the balance
sheet would show only the ending balance of the capital account as
shown in the given illustration.
Balance Sheet (Account Form)
In the account form of balance sheet, the assets are listed on the left
side of the report and the liabilities and proprietorship on the right
side. The example below illustrate the account form:
Balance Sheet (Report Form)
A balance sheet prepared
in report form shows the
assets on the top section of
the statement and the
liabilities and owner’s
equity on the bottom
section. The example
illustrates the report form:
Statement of Cash Flows
The statement of cash flows reports the cash receipts, cash payments,
and net change in cash resulting from operating, investing, and
financing activities during a period.

The cash flows shown in the statement are grouped into three major
categories: (1) operating activities. (2) investing activities, and (3)
financing activities. We will now look briefly at the way cash flows are
classified among these three categories.
Statement of Cash Flows (Operating)
The operating activities section shows the cash effects of revenue and
expense transactions. Stated another way, the operating activities
section of the statement of cash flows includes the cash effects of those
transactions reported in the income statement.
Statement of Cash Flows (Investing)
Cash flows relating to investing activities present the cash effects of
transactions involving plant assets, intangible assets, and investments
Statement of Cash Flows (Financing)
Cash flows classified as financing activities include the following items
that result from debt and equity financing transactions:

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