Financial Statement Analysis and Reporting

Topic Outline:
• Accounting Overview
• General Feature of Financial Statement
• Financial Statements
• Balance Sheet Accounts
• Accounting Equation
 OVERVIEW OF ACCOUNTING

WHAT IS ACCOUNTING?

Is a service activity. Its function is to provide quantitative

information, primarily financial in nature, about economic
entities that is intended to be useful in making economic
decisions, and in making reasoned choices among
alternative courses of action.
-Accounting Standard
Council
 ACCOUNTING OVERVIEW

Users of Accounting Information

• Internal User - those who are directly involved in

managing business.

• External User - those who are not directly involved in

managing business.
 INTERNAL AND EXTERNAL USERS
No. Stakeholders  

1 Investors make more intelligent decisions on where to put their scarce capital

2 Bankers determine whether or not a company will be able to service its debts

3 Suppliers assess whether or not a potential customer is a good credit risk

4 Customers determine whether or not the company is strong enough financially to deliver on
long-term promises of service and warranty coverage

5 Tax Authorities determine whether or not a company is paying its fair share of taxes

6 Competitors benchmark their performance

7 Courts of Law measure, for example, the damage caused by one firm to another as a result of
alleged unfair trade practices

8 Prospective Employees determine whether the company is worth pursuing as a long-term employer

9 General Public anyone outside the company such as researchers, students, analysts and others are
interested in the financial statements of a company for some valid reason
 ACCOUNTING OVERVIEW
Types of Accounting Information classified as to users' needs:

• General Purpose accounting information - is information designed to

meet the common needs of most statement users and is primarily
prepared for external users.

• Special Purpose accounting information - is information designed to

meet the specific needs of particular statement users and is primarily
prepared for internal users.
 BRANCH OF ACCOUNTING

FINANCIAL ACCOUNTING - is the branch of accounting

that focuses on general purpose financial statement.

Financial Accounting vs. Financial Reporting

Both are focused on general purpose financial statement,
financial reporting endeavors to promote principles that are
also useful to "other financial reporting"
 FINANCIAL STATEMENTS

are the structured representation of an entity's financial

position and results of its operations.

FINANCIAL REPORT

includes financial statements plus other information provided

outside the financial statements that assists in the
interpretation of a complete set of financial statements or
improves users' ability to make efficient economic decisions.
Financial statements also show the results of the management’s
stewardship of the resources entrusted to it. To meet this objective,
financial statements provide information about an entity’s:
(a) assets;
(b) liabilities;
(c) equity;
(d) income and expenses, including gains and losses;
(e) contributions by and distributions to owners in their capacity
as owners; and
(f) cash flows.
COMPLETE SET OF FINANCIAL STATEMENT
• Statement of Financial Position
• Statement of Financial Performance / Profit and Loss
Statement
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes
• Additional statement of financial position
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
it shows the financial position of the business.

Element of Balance Sheet

• Assets - are economic resources you control that have resulted
from past events and can provide you with future economic
benefit.
• Current Assets - expected to be used up or converted into cash
within a year.
• Non-current Assets - assets and property owned by a business
that are not easily converted to cash within a year.
Element of Balance Sheet
Asset Accounts
• Cash
• Accounts Receivable
• Allowance for Bad Debts
• Notes Receivable
• Inventory
• Prepaid Supplies
• Land
• PPE
• Accumulated Depreciation
Element of Balance Sheet
2. Liabilities - are your present obligations that have resulted
from past events and can require you to give up resources when
settling them.
• Current liabilities - debts a company must pay within a normal
operating cycle, usually less than 12 months.
• Non-current liabilities - the debts a business owes, but isn't
due to pay for at least 12 months.
Element of Balance Sheet
Liabilities Account
• Accounts Payable
• Notes Payable
• Interest Payable
• Salaries Payable
• Utilities Payable
• Unearned Income
Element of Balance Sheet
3. Owner's Equity - is asset minus liabilities
• Increased by investments or contributions by the owners and
income or profit earned by the business.
• Decreased by withdrawals or distributions to the owner and
expenses or loss incurred by the business.
 ACCOUNTING EQUATION
Assets = Liabilities + Owner’s Equity
Assets Liabilities Owner’s Equity

700,000 P200,000 P500,000

P800,000 300,000 P500,000

1,000,000 P800,000 200,000

1,500,000 P500,000 P1,000,000

P960,000 P800,000 160,000

PRESENTATION OF BALANCE SHEET
REPORT FORM
PRESENTATION OF BALANCE SHEET
ACCOUNT FORM
 EXAMPLE
Accounts Amount

Cash P 5,000

Loans Payable 77,500

Accounts Receivable 2,600

Supplies 2,300

Equipment 17,000

Owner’s Equity 40,000

Accounts payable 22,400

Building 113,000
EXAMPLE