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FINANCIAL

The document provides an overview of financial statements and their objectives. It discusses the four main financial statements: (1) statement of financial position, (2) statement of comprehensive income, (3) statement of stockholders' equity, and (4) statement of cash flows. It explains that financial statements summarize a company's financial activities and performance over a period of time, usually a fiscal year, and how they are used by different stakeholders to make informed decisions.

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Nikko Vidal
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17 views24 pages

FINANCIAL

The document provides an overview of financial statements and their objectives. It discusses the four main financial statements: (1) statement of financial position, (2) statement of comprehensive income, (3) statement of stockholders' equity, and (4) statement of cash flows. It explains that financial statements summarize a company's financial activities and performance over a period of time, usually a fiscal year, and how they are used by different stakeholders to make informed decisions.

Uploaded by

Nikko Vidal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CHAPTER 5

UNDERSTANDING
FINANCIAL STATEMENTS

REPORTERS:
ARC JUNE ENGRESO
SHIEDELIZCH RODRIGUEZ
PRINCESS N. VIZMANOS
This chapter contains a framework and a
number of tools that can help in the analysis
of businesses and the evaluation of their
securities. The records provide an in-depth
overview of the financial activity of a
company during a certain time period.
HOW BUSINESS ACTIVITIES
ARE REPORTED
Business activities are reported through financial statements, which are formal documents
summarizing an organization's financial transactions and performance over a specific period,
typically a fiscal year. And here's how business activities are reported through financial
statements:
• Understand the company’s business activity.
• Financial statements serve the needs of different users
• Accounting information should be used in business context in which the
information is created
• Financial statements also provide crucial input for strategic planning
I V E S o f
O EC
B JT
Ge ne r a l
E ME N T S
A L S TA T
I NA N C I
F • Providing Information for Economic Decision
• Providing Information about Financial Position
• Providing Information About Performance of an
Enterprises
• Providing Information About Changes in
Financial Positions
DEMAND FOR FINANCIAL
ACCOUNTING INFORMATION
The demand for financial accounting information is driven by
various stakeholders who rely on this data to make informed
decisions, assess financial health, and ensure accountability.
The broad classes of users that demand financial accounting
information include the following:
• Managers and Employees
• Investors and Analysis
• Creditors and Suppliers
• Shareholders and Directors
• Regulatory and Agencies
• Customers and Potential Strategic Partners
• Other decision maker
SOURCES OF INFORMATION ABOUT
BUSINESS ENTERPRISE

In general, the quantity and quality of accounting


information that companies supply are determined by
managers assessment of the benefits and costs of disclosure.
In the Philippines, publicly listed companies must file
financial accounting information with the Securities and
Exchange Commission(SEC).
1. The audited annual report that includes the four
financial statements(statement of Financial
Position)[traditionally known as the:
• Balance Sheet Statements
•Statement of Comprehensive Income
•Statement of Stockholder's Equity
•Statements of Cash Flow
2.The unaudited quarterly or interim reports that
include summary version of the four financial
statements and limited additional disclosure.
BENEFITS OF DISCLOSURE
•The advantages of supplying accounting extend to a company's
capital,labor,input and outputs markets.For instance,debt and equity
financing are sourcedfrom capital market's and the better a company's
prospects,the lower will be it's cost, of capital and reflected in higher
stock prices or lower interest rate.
COSTS OF DISCLOSURE
• •The preparation and dissemination cost of supplying
accounting information can be substantial,and the
possibility for information to produce competitive
disadvantage is high.
• •Companies are comprehensive that disclosures of their
activities such product or segment successes of failure
strategicinitiatives ,technological or systems innovations
could harm their competitive advantages.
CONSTRAINTS ON
RELEVANT AND RELIABLE
INFORMATION
1 2 3 4
Balance between Qualitative True Fair View or Fair
Timeliness Balance Between Benefits
Characteristic
Presentation
and Costs
If under is
undue in the The balance between benefit Financial statements are
Balancing or frequently described as
and cost is a pervasive
reporting of trade-off between
constraints rather than a showing a true and fair
information ,it view of the financial
qualitative characteristic .The qualitative
may lose benefits derived from position, performance and
characteristics is
relevance. changes in financial
information should exceed the
often necessary. position of an enterprise.
cost of providing it.
4 FINANCIAL
• STATEMENT OF FINANANCIAL POSITION
STATEMENTS
• STATEMENT OF COMPREHENSIVE INCOME
• STATEMENT OF STOCKHOLDERS EQUITY
• STATEMENT OF CASH FLOWS
FIGURE 5-1 FINANCIAL STATEMENTS
LINKS ACROSS TIME
linkage of financial statements
The statement of financial position and statement of comprehensive income are
linked via retained earnings.
FIGURE 5-3 ARTICULATION OF ORANGE INC.
FINANCIAL STATEMENTS
FINANCIAL STATEMENT
PREPARATION:
• Income statement (statement of comprehensive
income accounts)
• Statement of financial position (retained
earnings)
• Statement of stockholders' equity
• Statement of cash flows (cash accounts and
other sources)
STATEMENT OF FINANCIAL
-at a point in time
POSITION
2 ways a company can finance its assets:

Owner Financing
-raise money from
Shareholders
Nonowner financing
-raise money from
banks or other creditors
Investing activities -represented by company’s assets
(financed by a combination of nonowner financing
(liabilities) and owner financing (equity)

Financing activities -represented by company’s assets


(financed by a combination of nonowner financing
(liabilities) and owner financing (equity).
2 main ways to get the money needed to pay for assets:
• Owner (or equity) financing
• Nonowner (creditor or debt) financing
Working Capital - current assets are often called working

Net working Capital- difference between current assets minus


current liabilities

Net operating working Capital- difference between current


assets and non-interest bearing current liabilities
STATEMENT OF COMPREHENSIVE
-over a period of time
INCOME
This income statement layout follows:

OPERATING
➡ to produce, promote, and sell it's products and services
EXPENSES
*Input market - generate expenses (or costs) like inventory salaries materials
and logistics
*Output market- generate revenues (or sales) and some expenses for
marketing and distributing products and services to customers.
STATEMENT OF STOCKHOLDER'S
- reports on changes in key types of equity over a period
EQUITY of time
STATEMENT OF CASH
- reports the change (either an increase or decrease) in
FLOW
company's cash balance over a period of time
THANK YOU

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