Business
Financial Statements
Financial statements are formal records of a company's financial activities, providing a snapshot of its financial position and performance. They typically include the balance sheet, income statement, and cash flow statement, offering valuable insights into the company's profitability, liquidity, and solvency. These statements are essential for stakeholders, such as investors and creditors, to assess the company's financial health and make informed decisions.
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11 Key excerpts on "Financial Statements"
eBook - PDF- John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie, Andreas Hellmann, Jodie Maxfield(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
The basic Financial Statements useful for assessing the financial health of a business are a statement of financial performance (also called an income statement or profit and loss statement), a statement of financial position (also called a balance sheet), a statement of changes in equity and a statement of cash flows. For reporting to external users, all statements purported to be general purpose Financial Statements must be prepared in accordance with the requirements of accounting standards. Reporting to external parties is discussed in more detail later in this text. The statement of fnancial position The statement of financial position (balance sheet) reports the financial position of an entity at a specific point in time. The financial position is reflected by the assets of the entity, its liabilities or debts, and the equity of the owner. Figure 2.2 shows a simple statement of financial position for a single proprietorship involved in providing repair services for television sets, Minh’s TV repairs, as at 30 June 2021. FIGURE 2.2 Statement of fnancial position (account format) MINH’S TV REPAIRS Statement of fnancial position as at 30 June 2021 ASSETS LIABILITIES Cash at bank $ 25 170 Accounts payable $ 10 380 Accounts receivable 8 895 Mortgage payable 100 500 Repair supplies 7 305 110 880 Repair equipment 55 350 Land 30 000 EQUITY Building 127 500 Minh Vu, capital 143 340 $ 254 220 $ 254 220 The heading of the statement of financial position indicates the name of the entity, the name of the statement and the date. The basic statement is divided into three main sections: assets, liabilities and equity. In figure 2.2, the assets are listed on the left-hand side and the liabilities and equity are listed on the right- hand side. Note that the two sides of the statement are equal. This equality must exist because the left-hand side lists the assets and the right-hand side shows the sources of the funds used to acquire the assets.
eBook - ePub- William J. Ward Jr.(Author)
- 2015(Publication Date)
- Praeger(Publisher)
Chapter 9Financial Statements
The best ways to understand the results of financial management is by examining three Financial Statements that provide a summary of what transpired during a given period of time (e.g., the month of January, last fiscal year) or the financial status on a particular date (e.g., June 30, December 31). These Financial Statements are produced for every company: the balance sheet, the statement of operations (often referred to as the P&L or profit and loss statement), and the statement of cash flows.The Balance Sheet
Diagrammatically, the balance sheet (Figure 9.1 ) can be thought of as a family portrait. It depicts the status of a business on a particular date, just as a family portrait freezes the action at a particular time. Like the family portrait, it is a snapshot as opposed to a movie. It does not cover what happened over the course of time but rather is a picture of an instant in time. As depicted in Figure 9.1 , the assets are on the left side of the statement and the liabilities and equities are on the right side.The balance sheet tells what is owned by the company (assets), what is owed (liabilities), and the difference between what is owned and what is owed (equity or net assets). Assets are generally described as current assets (cash, short-term securities, accounts receivable, inventory) and long-term or fixed assets (typically, property, plant, and equipment). Liabilities are generally classed as either current liabilities (amounts that are due and payable during the next 12-month period) or long-term liabilities (representing those debts that will not be paid during the next 12 months). Equity, a surrogate for the value of the company, is the difference between what is owned (the assets) and what is owed (the liabilities). Depending on the type of company, this may be referred to as owner’s equity, stockholder’s equity, fund balance, the capital account, or, simply, capital, or in the case of most nonprofit organizations, net assets.
eBook - PDF- John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie, Andreas Hellmann, Jodie Maxfield(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
In addition to being a critical information source of a company’s fnancial health, fnancial reports are also con- sidered an important mechanism to maintain the integrity of capital markets around the world. Recently, however, questions have been raised around the continuing use- fulness of fnancial reports to investors. Some academic studies point to evidence indicating a decline in usefulness of fnancial reports to investors over time. Other reports seek to explain a loss of relevance of fnancial informa- tion due to the increasing number of information sources available to investors, and others interested in corporate fnancial information. While fnancial reports have been criticised for increas- ingly not meeting the needs of users, recent Australian evidence indicates they are still of relevance to investors. While the results suggest there is room for improvement, the fndings do not mark the end of accounting as we know it, as has been the call from some industry and academic writers. The research is based on the combined and sepa- rate decision-usefulness of net income ([proft or loss]) and shareholders’ equity ([balance sheet]) for valuation, as well as the decision-usefulness of operating cash fows. Source: CPA Australia 2018, pp. 4, 15. LEARNING CHECK The four basic fnancial statements prepared by an entity are the statement of fnancial performance (income statement), the statement of fnancial position (balance sheet), the statement of changes in equity, and the statement of cash fows. The accounting equation is: Assets − Liabilities = Equity. Assets are current economic resources controlled by the entity as a result of past events. Liabilities are present obligations of an entity arising from past events, to transfer economic resources. Equity is the residual interest in the assets of the entity (i.e. what is left over) after deducting all the entity’s liabilities.
eBook - PDF- David W. O'Bryan(Author)
- 2006(Publication Date)
- Information Age Publishing(Publisher)
Financial Accounting: A Course for All Majors, pp. 5–13 Copyright © 2010 by Information Age Publishing All rights of reproduction in any form reserved. 5 THREE BASIC Financial Statements INTRODUCTION In Chapter 1 we learned that Financial Accounting is a subset of the broader field of accounting. This chapter will now sharpen our focus on the primary focus of this course, Financial Accounting. FINANCIAL ACCOUNTING We are going to start with a very basic definition of Financial Accounting as a “black box” that converts inputs into outputs: Inputs Financial Accounting Outputs In this diagram, the basic inputs are the multitude of economic trans-actions that affect an entity. For example, think of the, literally, millions of cash register transactions for Wal-Mart in any given year. These are the basic inputs into the Financial Accounting process. The outputs of the Financial Accounting process are a set of reports that summarize the financial results and position of an entity for a partic-ular time period. These reports are called Financial Statements. CHAPTER 2 6 D. W. O’BRYAN How do we get from inputs to outputs? What is in the black box? Well, for this class we won’t worry too much about understanding the technical details that take place in the black box. Accounting majors will study that in great detail in a future class. For now, we will focus on understanding how the inputs (i.e., financial transactions) affect the outputs (i.e., finan-cial statements). Financial Statements If you think about condensing the information from potentially millions of transactions (the inputs) into a few reports (the outputs) you will quickly realize that Financial Statements are a summary of economic activ-ity for a period of time. In fact, this is one of the primary benefits of Financial Statements. If you are thinking about buying stock in Wal-Mart, or if a bank were thinking about lending them money, you probably don’t need to review every single cash register transaction.
eBook - PDF- Cecile Laurin, Tage C. Tracy, John A. Tracy, John A. Tracy(Authors)
- 2023(Publication Date)
- For Dummies(Publisher)
What more do you need to know? Well, it’s also helpful to know about the cash flows of the business. This chapter explains the third primary financial statement reported by busi- nesses: the statement of cash flows. This financial statement has two purposes: It explains why cash flow from profit differs from bottom-line profit, and it sum- marizes the investing and financing activities of the business during the period. This may seem like an odd mix to put into one financial statement, but it makes sense. Earning profit (net income) generates net cash inflow (at least, it should normally). Making profit is a primary source of cash to a business. The investing and financing transactions of a business hinge on its cash flow from profit. All sources and uses of cash hang together and should be managed in an integrated manner. IN THIS CHAPTER » Clarifying why the statement of cash flows is reported » Earning profit versus generating cash flow » Presenting the statement of cash flows in two flavours » Reading lines and between the lines in the statement of cash flows » Gaining insights into cash flows 150 PART 2 Exploring Financial Statements To further emphasize the importance of the statement of cash flows, we offer this bit of important advice: When reading the Financial Statements, always make sure you understand the income statement, trust the balance sheet, but most impor- tantly, rely on the statement of cash flows. While the statement of cash flows is generally the most difficult of the Financial Statements to understand and analyze, it also provides invaluable information as it relates to how a business generates (comes up with) and consumes (uses) its all-important lifeline: cash! It’s one thing for the management team of a business to explain why sales revenue came in below forecasts or an anticipated profit turned into an actual loss. These discus- sions are painful enough but do not even compare to having to explain why a business actually ran out of cash.
eBook - PDFAccounting
Tools for Business Decision Making
- Paul D. Kimmel, Jerry J. Weygandt, Jill E. Mitchell(Authors)
- 2021(Publication Date)
- Wiley(Publisher)
A balance sheet reports the assets, lia- bilities, and stockholders’ equity of a business at a specific date. A statement of cash flows summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time. Assets are resources owned by a business. Liabilities are the debts and obligations of the business. Liabilities represent claims of credi- tors on the assets of the business. Stockholders’ equity represents the claims of owners on the assets of the business. Stockholders’ equity is subdivided into two parts: common stock and retained earnings. The basic accounting equation is Assets = Liabilities + Stockholders’ Equity. Within the annual report, the management discussion and anal- ysis provides management’s interpretation of the company’s results and financial position as well as a discussion of plans for the future. Notes to the Financial Statements provide additional explanation or detail to make the Financial Statements more informative. The audi- tor’s report expresses an opinion as to whether the financial state- ments present fairly the company’s results of operations and financial position. *4 Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and pri- vate accounting, governmental, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement. The Review and Practice section provides opportunities for students to review key concepts and terms as well as complete multiple-choice questions, brief exercises, exercises, and a comprehensive problem.
eBook - PDFFinancial Accounting Theory and Analysis
Text and Cases
- Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
247 7 Financial reports can be divided into two categories. The first category discloses the results of the flow of resources over time and includes the income statement, the statement of retained earnings, and the statement of cash flows. The second category summarizes the status of resources at a point in time. These two categories suggest an important distinction in measurement emphasis between flows and stocks. Flows are productive services that must be measured over some period of time, whereas stocks are resources that are measured at a particular point in time. The matching con- cept emphasizes flows. This emphasis was previously relied upon for measuring and reporting items in the income statement. Under the matching concept, flows were measured directly. The result was that stocks were reported as residuals of the matching process. Alternatively, when earnings are defined as the change in the net assets from nonowner transactions stocks are mea- sured directly, making flows the residuals. In general, pronouncements of the FASB are consistent with the latter measurement approach, indicating a shift in emphasis from an income statement approach to an asset–liability, or balance sheet approach to the measurement of net income. Accounting is the means by which management reports to various users of financial information. Evaluation of a company’s financial position is an important factor in satisfying the needs of creditors, stockholders, management, the government, and other interested parties. Management attempts to satisfy these needs by presenting information on the company’s resources, obliga- tions, and equities at periodic intervals. In this chapter, we describe the balance sheet and the measurement techniques currently used to disclose assets, liabilities, and equity; illustrate the disclosure of financial statement elements on the balance sheets of Hershey and Tootsie Roll; and discuss how to evaluate a company’s financial position.
- Michael Chibili(Author)
- 2019(Publication Date)
- Routledge(Publisher)
The cash flow statement (also called the statement of cash flow) 5.1 Cash in the business 5.2 Establishing cash flow statements 5.3 A worked example in the establishment of the SCF using the indirect method Companies can only survive if they have enough cash in hand to be able to take care of all their expenses. Cash is considered as the lifeblood of any business. Users of Financial Statements who assess only the statement of profit and loss to try and determine the financial health of the company might later on realize that their assessment may have been incorrect. Profitable companies have been known to have suddenly failed because they did not adequately manage their cash flows. An understanding of the importance and management of cash is a must if any company’s management would want to avoid sudden liquidity problems. Section 5.1 discusses the place of cash in a business, while at the same time differentiating profits from cash. Section 5.2 provides the rules in the establishment of the cash flow statement, while Section 5.3 is a worked example of the cash flow statement using one of the well established methods. 81 5 © Noordhoff Uitgevers bv 5.1 Cash in the business Cash is money, in the form of notes and coins, which constitutes payment for goods or services at the time of their purchase or consumption. Cash is not only cash in hand but also deposits and overdrafts which are commonly called cash equivalents. All transactions whether they are settled immediately or settled in the future are ultimately conducted by cash or cash equivalents. Just like all other assets, cash is an asset with the same properties like other assets, and also many more.
- Robert H. Burger(Author)
- 2016(Publication Date)
- Libraries Unlimited(Publisher)
Understanding this clearly depends on knowing some details about double- entry bookkeeping, which is covered in chapter 4. The point to take away about the cash flow statement is that it helps determine whether the library had sufficient cash during the year for its business-type activities and how it met those demands for cash. The cash flow statement is usually divided into three or four sections, which include cash flows (in and out) related to operating activities (for a library, the provision of a business-related service or selling of a prod- uct); non-capital-financing and capital-financing cash flows (borrowing and repaying money for noncapital (e.g., grants); capital assets (i.e., buildings, renovations); and investing cash flows (purchase and sale of long-term investments), which are rare in libraries but might include certificates of deposit. The analysis of a cash flow statement becomes particularly important when a library’s Financial Statements are analyzed, especially any activities involving business operations. No further discussion of the cash flow state- ment will occur in this primer, but you should be aware of the existence of such a statement in case you see it. For-profit entities (e.g., partnerships, corporations) are required by national standards to provide a statement of cash flows among their Financial Statements. Summary In this chapter, you were introduced to the three basic financial state- ments: the balance sheet, the revenue and expense statement, and the cash flow statement. An analogy was made with a person’s net worth in order to tie these Financial Statements to your personal experience. With that analogy you saw that the choice of the accounting basis (cash, accrual, or modified accrual) determines what transactions are recorded and when they are recorded. You also learned that the first two statements have different names in different types of institutions.
eBook - PDFFinancial Accounting Theory and Analysis
Text and Cases
- Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
Required: a. Do you think this focus implies that the balance sheet is more important than the income statement? Explain. b. How is the balance sheet useful to investors? Discuss. c. What is meant by the phrase “Financial Statements are articulated”? d. Which measurements currently reported in balance sheets are consistent with the physical capital maintenance con- cept? Give examples. e. Which measurements currently reported in balance sheets are not consistent with the physical capital maintenance con- cept? Give examples. The Statement of Cash Flows Case 7-5 Presenting information on cash flows has become an important part of financial reporting. Required: a. What goals are attempted to be accomplished by the presen- tation of cash-flow information to investors? b Discuss the following terms as they relate to the presentation of cash-flow information: i. Liquidity ii. Solvency iii. Financial flexibility Alternative Treatments of Items of the Statement of Cash Flows Case 7-7 The statement of cash flows is intended to provide information about the investing, financing, and operating activities of an enterprise during an accounting period. In a statement of cash flows, cash inflows and outflows for interest expense, interest revenue, and dividend revenue and payments to the government are considered operating activities. 277 FASB ASC Research FA S B A S C R E S E A R C H For each of the following FASB ASC research cases, search the FASB ASC database for information to address the issues. Cut and paste the FASB paragraphs that support your responses. Then summarize briefly what your responses are, citing the pronounce- ments and paragraphs used to support your responses. FASB ASC 7-1 Classification of Savings Accounts by Credit Unions If you have a savings account, it is an asset. In the past, some credit unions reported savings accounts (often called member share accounts) as equity and others reported them as liabilities.
eBook - PDFFinancial Accounting Theory and Analysis
Text and Cases
- Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
Net income is the result of changes in assets and liabilities: some current, and some noncurrent; consequently, net income cannot be equated with a change in cash. The statement of cash flows discloses the effects of earnings activities on cash resources, how assets were acquired, and how they were financed. The ability of an enterprise to generate cash from operations is an important indicator of its financial health and the degree of risk associated with investing in the firm. The investors and creditors of a firm anticipate a return that is at least equal to the market rate of interest for investments with equal risk. Or, stated differently, investors expect to receive a discounted present value of future cash flows that is equal to or greater than their original investment. The past cash flows from a firm are the best available basis for forecasting future cash flows. The FASB stressed the importance of cash flows to investors when it stated: “Financial reporting should provide information to help investors, creditors, and others assess the amounts, timing and uncertainty of prospective cash inflow to the related enterprise.” 29 The ability to predict returns to investors and creditors is somewhat complex because management might decide to use cash in a variety of ways, and the uses of cash are interrelated. For example, available cash may be reinvested in assets or used to expand facilities and markets, retire debt and equity, or pay dividends. Accounting researchers are interested in determining the relation- ship between accounting information and decision making. Empirical research has indicated that cash‐flow data have incremental information content over accrual earnings data and that cash‐flow data are superior to changes in working capital information. 30 These findings support the FASB’s position on the disclosure of cash‐flow data because they provide evidence that such information can result in better decisions.
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