Financial Statements

Financial Statements are the reports that provide the detail of the
entity’s financial information including assets, liabilities, equities,
incomes and expenses, shareholders’ contribution, cash flow, and
other related information during the period of time.
These statements normally required to have an annual audit by
independent auditors, and they have presented along with other
information in entity annual report.
They are presented in two comparison periods so users could
understand how the current period’s financial performance is
compared to the corresponding period.

Financial statements are used by different stakeholders including

entity’s management, shareholders, investors, staff, majors’
customers, majors’ suppliers, government authority, stock
exchanges, and other related stakeholders.
In general, there are five types of financial statements that prepare
by an entity in monthly, quarterly, annually or the period required by
management.
Those five types of financial statements including income
statement, statement of financial position, statement of change in
equity, statement of cash flow, and the Noted (disclosure) to
financial statements.
Five types of Financial Statements:
1) Income Statement:
The income statement is one of the financial statements of an entity
that reports three main financial information of an entity for a specific
period of time. That information included revenues, expenses, and
profit or loss for the period of time.
The income statement is sometimes called the statement of financial
performance because this statement lets the users assess and
measure the financial performance of an entity from period to period
of the similar entity, competitors, or the entity itself.
This statement could be present in two different formats that allow
by IFRS based on an entity’s decision.
The first format is a single statement format where both income
statements and other comprehensive statements are present in one
statement.
The second format is the multi-statement where income statements
and other comprehensive income are present in two different
formats.
The detail of this three main information are:
Revenues:
Revenues refer to sales of goods or services that the entity
generates during the specific accounting period.
The revenues that present in the income statements are the
revenues generating from both cash sales and credit sales. In the
revenues section, you could know how much the entity makes net
sales for the period they are covering.
Revenues normally report as the summary in the income statement
and if you want to check the detail, probably you need to check with
the noted to the revenues that provided in the financial report.
In Noted, users may see the different lines of revenues that the
entity is generating for the period. This could help users to
understand which line of revenues are significantly increasing or
declining.
In double entries accounting, revenues are increasing on credit and
decreasing in debit.
Expenses:
Expenses are operational costs that occur in the entity for a specific
accounting period.
They are ranking from operating expenses like salary expenses,
utilities, depreciation, transportation, and training expenses to tax
expenses and interest expenses.
Expenses here also include the costs of goods sold or the cost of
rendering services that incur during the period.
Expenses are recording in a different direction from revenues in
terms of the accounting entry. They are increasing in debit and
increase in credit.
Profit or Loss:
Profit or loss refers to net income or the bottom line of the income
statement that results from deducting expenses from revenues.
If the revenues during the period are higher than expenses, then
there is profit.
However, if the expenses are higher than revenues, then there will
be losses.
Profit or loss for the period will forward to retain profit or loss in the
balance sheet and statement of change in equity.
2) Balance Sheet:
It shows the balance of assets, liabilities, and equity at the end of
the period of time.
The balance sheet is sometimes called the statement of financial
position since it shows the values of the net worth of the entity. You
can find entity net worth by removing liabilities from total assets.
It is different from the income statement since the balance sheet
reports account’s balance at the reporting date while income
statement reports that the account’s transactions during the
reporting period.
If the user of financial statements wants to know the entity’s financial
position, then the balance sheet is the statement the user should
looking for.
Assets:
Assets are resources own by an entity legally and economically. For
example, building, land, cars, and money are types of assets of the
entity. Assets are classified into two main categories: Current Assets
and Noncurrent Assets.
Current Assets refer to short term assets including cash on hand,
petty cash, raw materials, work in progress, finished goods,
prepayments, and a similar kind that convert and consume within 12
months from the reporting date.
Noncurrent assets including tangible and intangible assets that
expected to convert and consume in more than 12 months from the
reporting date.
In the accounting equation, assets equal to liabilities plus equities.
They are increasing on debit and decreasing credit.
Liabilities:
Liabilities are the obligation that an entity owes to other persons or
entities. For example, credit purchases, bank loans, interests
payable, taxes payable, and an overdraft.
The same as assets, liabilities are classified into two types: Current
Liabilities and Non-current liabilities. The liabilities are the balance
sheet items and they represent the amount at the end of the
accounting period.
A current liability is an obligation that is due within one year. In other
words, the entity is expected to pay or willing to pay back the debt
with one year.
For example, purchase on credit within one month should be
recorded as a current liability.
Non-current liabilities are the debt or obligation that due to more
than one year or more than twelve months.
For example, long term lease that due in more than twelve months
should record in the non-current liability.
Equity:
Equities are the difference between assets and liabilities. The items
in equity include share capital, retain earning, common stock, prefer
sock, and reserves.
The change of assets and liabilities over the period will affect the net
value of equity. You can calculate the net value of equity of an entity
by removing liabilities from assets.
The net income or loss from the income statement during the period
will be added to the opening balance of retained earnings or
accumulated loss.
3) Statement of Change in Equity:
A statement of change in equity is one of the financial statements
that show the shareholder contribution, and movement in equity. and
equity balance at the end of the accounting period.
Information that shows is these statements include classification of
share capital, total share capital, retain earning, dividend payment,
and other related state reserves.
Please noted that the statement of change of equity is the result of
the income statement and balance sheet.
Basically, if the income statement and balance sheet are correctly
prepared, the statement of change in equity would be corrected too.
4) Statement of Cash Flow:
The statement of cash flow is one of the financial statements that
show the movement of the entity’s cash during the period. This
statement helps users understand how is the cash movement in the
entity.
There are three sections in this statement. They are cash flow from
the operation, cash flow from investing, and cash flow from financing
activities.
For example, cash flow from operating activities helps users know
how much cash an entity generates from the operation.
In general, the information will be shown base on the method of
cash flow that the entity prepares. It includes direct and indirect
methods.
5) Noted to Financial Statements:
Note to Financial Statements is the important statement that most
people forget about.
This is the mandatory requirement by IFRS that entity must disclose
all information that matters to financial statements and help users to
have a better understanding.
Note or sometimes call disclosure detail the financial information
related to the specific accounts. For example, in the balance sheet,
you will see the balance of fixed assets.
But detail information of those fixed assets is included not in the
statement of financial position.