Slide 1: Good morning, everyone, I’m Kristel Gallego from Group 1 and I’ll be

discussing about the set of reports which is the end-product of the financial
accounting process, and these are called the FINANCIAL STATEMENTS.

Slide 2: The Generally Accepted Accounting Principles require 3 reports to be

prepared: 1 is the Income Statement; second is the Balance Sheet and lastly the
Statement of Cash Flows.

Slide 3: The income statement or also known as the profit and loss statement,
provides insight into the profitability of a company over a specified period. It
includes revenues, expenses, and net income. The basic income statement equation
is REVENUES – EXPENSES = NET INCOME

Slide 4: At the top of every income statement, you'll see three key pieces of
information: the company name, the type of report ('Income Statement'), and the
reporting period, such as 'For the Year Ended December 31, 20XX'. This header tells
us who the report is about and the specific timeframe the data covers.

For the accounts overview we have

1. Sales Revenue - this represents the total income generated from the company's core
business activities. For instance, sales of products or services.
Example: If a company sells skincare products, this will include all sales revenue from
those products.

2. Cost of Sales - This represents the direct costs of producing or purchasing

the goods sold during the period.

Example: For a retailer, this includes the cost of purchasing inventory from
suppliers.

3. Gross Margin – this is the difference between revenues and cost of sales. It
shows the profitability of core operations before considering other expenses.

The formula is Sales Revenue minus Cost of Sales.

In this illustration the sales revenues amount to 75,478 and cost of sales is
52,227, the gross margin is 23,251.

4. Operating Expenses - These are expenses incurred from the company's

regular operations but not directly tied to production, like salaries, rent, and
marketing.

For Example: "If a company spends 5,000 on advertising, this will be recorded
under operating expenses

5. Income before tax – this is calculated by subtracting operating expenses

from gross margin
 In the sample illustration, the Gross Margin is 23,251and operating expenses
are 10,785, by subtracting the two, we will get the Income before Taxes of
12,466

6. Provision for Income Tax - This is an estimate of the taxes owed for the
current year.

7. Net Income is the final “bottom line” figure after deducting the provision for
Income Taxes from the Income before Tax.

Let’s refer to our illustration, if Income before Tax is 12,466 and the provision
for Income Taxes are 6,344, our Net Income is 6,122.

However, not all income statements show a net income. If expenses are
larger than revenues, the result is a net loss.

These components, from revenues to net income or net loss, provide a

comprehensive view of the company's financial performance. Let’s now move on to
how these ties into the broader financial statements.

Slide 5:

Slide 6: At the top of every balance sheet, you’ll find three essential details: the
company’s name, the type of report ('Balance Sheet'), and the reporting date, such
as 'As of December 31, 1997.' Unlike the income statement, the balance sheet is a
snapshot of the company's financial position at a specific moment in time.

For the purposes of our discussion, I will be focusing on the major components of
the balance sheet. While the sample illustration includes detailed subcategories, I
will not go over these accounts.

Assets represent everything the company owns or controls that has economic
value. These are divided into two categories:"

 Current Assets: Expected to be converted into cash or used up within one year,
such as cash, accounts receivable, and inventory.

 Non-Current Assets: Long-term resources like property, equipment, and intangible

assets like patents.

Quick Recap: For CURRENT, think of short-term, cash in hand or within one year; For
NON-CURRENT, think of long-term, fixed assets or investments

Slide 7: Liabilities are what the company owes to external parties. These are also
categorized into two groups:

 Current Liabilities: Obligations due within one year, such as accounts payable
and short-term loans.
 Non-Current Liabilities: Long-term debts and obligations like mortgages or
bonds payable.

Quick Recap: For CURRENT, think of short-term, less than 1 year or upcoming
payments; For NON-CURRENT, think of long-term, over a year or ongoing obligations

Slide 8: Equity represents the owners' claims after all liabilities are deducted. It
includes items like common stock, retained earnings, and additional paid-in capital."

Formula: Equity = Assets – Liabilities

Slide 9: In the sample illustration, Holden Company has a total asset of 38,239,
total liabilities of 12,343 and a total equity of 25,896.

The balance sheet adheres to the fundamental accounting equation: Assets =

Liabilities + Equity. This ensures the statement is always balanced.

Slide 10: The statement of cash flows reveals how a company generates and uses
cash across its operations, investments, and financing activities.

Slide 11: At the top of the statement of cash flows, you’ll find the company’s name,
the type of report ('Statement of Cash Flows'), and the reporting period, such as 'For
the Year Ended December 31, 20XX.' This report tracks the actual movement of
cash in and out of the company over a period of time, complementing the income
statement and balance sheet.

For the purposes of our discussion, I’ll focus on the major components or categories
in the statement of cash flows: operating, investing, and financing activities.

Operating activities reflect the cash generated or used in the company’s core
business operations. This includes cash from sales, payments to suppliers, and
other expenses directly related to day-to-day operations.

Example: "If a company receives $500,000 from customers and pays $300,000 in
salaries and utilities, the net cash flow from operating activities is $200,000."

Key Words to Remember:

Think day-to-day operations, revenue generation, expenses.

Slide 12: Investing activities show cash flows related to the purchase or sale of
long-term assets, such as equipment, buildings, or securities."

Example: "If a company spends $150,000 to purchase new equipment and earns
$50,000 from selling an old machine, the net cash flow from investing activities is -
$100,000."

Key Words to Remember:

Think capital expenditures, long-term assets, investments.

Slide 13: Financing activities detail cash flows associated with borrowing, repaying
debt, or issuing equity. This includes cash from loans, dividends paid, and funds
raised from issuing shares."

Example: "If a company raises $100,000 from issuing stock and pays $30,000 in
dividends, the net cash flow from financing activities is $70,000."

Key Words to Remember:

Think loans, equity, dividends.

Slide 14: The statement concludes with the net change in cash during the period,
which combines all three activities—operating, investing, and financing. This figure
is added to the opening cash balance to determine the ending cash balance.

Example: "If the net cash flow from all activities is $50,000 and the beginning cash
balance was $20,000, the ending cash balance will be $70,000.

Slide 15: It’s essential to note that cash flow is not the same as profit. A company
can be profitable on paper but still have negative cash flow if, for example,
payments are delayed or large capital expenditures are made.

By understanding the cash flows from operating, investing, and financing activities,
the statement of cash flows provides insight into how a company manages its cash.
This concludes our overview of the financial statements, tying together the income
statement, balance sheet, and cash flow statement.