corporat financial statements.ppt

8/14/2019 corporat financial statements.ppt

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What is Accounting ?

A system by which we record & interpret the results / status of a

business into numbers by using an agreed upon methodologies. Accounting process serves several purposes:

Providing a record of assets owned, amounts owed to others,and monies invested.Providing reports showing the financial position of anorganization and the profitability of its operations.Provides a way of measuring an organizations effectiveness.Helps stakeholders monitor an organizations activities and

performance.Enables potential investors to evaluate an organization andmake decisions.


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Accounting as an Information System

An accounting information system (AIS) is a system designedto transform financial and other data into information.

Accounting information systems perform this transformationwhether thorough manual or computerized systems .

OutputData ProcessingInput

Supportingvoucher

Journal LedgerTrial

Balance FinancialStatements


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Users of Financial Statements

Management

InternalUsers

Employees

ExternalUsers

Shareholders

Regulatory Authorities

Analysts

Lenders / Creditors

Customers

Potential Investors


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The Annual Report

The Major & most important output of the accounting system isthe Annual Report.

It consists of the following:

1) Management Report / Chairmans Letter. 2) The Balance Sheet.3) The Income Statement.4) The Statement of Retained earnings.5) The Statement of Cash Flows.6) Auditors Report. 7) Footnotes.


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Accounting Assumptions

Separate entityA corporation has a separate entity from its owners.

Going concern assumptionThe business is going to be operating for theforeseeable future.

Stable monetary unit assumption

e.g. the U.S. dollar Fixed time period assumption info. prepared and reported periodically (quarterly,annually, etc.)


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Accounting Principles

Historical CostTransactions are recoded at their historical costs.

Revenue RecognitionThe recognition of revenues when:(1) reasonable assurance of collection; (2) substantial completion ofthe transaction.

MatchingAll expenses & revenues must be recognized for/during the same

period.Full disclosure principle

Major information about the business is disclosed in a clear andunderstandable way.


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Accrual Basis of Accounting Accrual Basis

Records revenues andexpenses in the periodswhen they are earned orincurred.

Cash BasisRecords revenues whencash is received, andexpenses when cash is paid.


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The Annual Report

Corporations that have shareholders must prepare anAnnual Report and make it available to the corporation's

shareholders.

The basic purpose of the Annual Report is to let theshareholder's know how the company is doing. The Annual

Report contains information such as basic financialstatements, management's opinion of the past year'soperations, and the corporation's future prospects.


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The Audit report

A report issued by an independent (external) Auditor that

expresses an opinion about whether the financialstatements present fairly a company's financial position,operating results, and cash flows in accordance withgenerally accepted accounting principles.


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The Income Statement

Financial document showing a company's income /

revenues and expenses over a given period (like one fiscalyear).

Also known as the Earnings Statement or Statement ofOperations.


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Income Statement (Basic Format)Item Description

Total SalesLess: Cost of Goods SoldGross Profit

Less: Selling, General & Administrative ExpensesOperating Profit

Plus: Other Sundry IncomeLess: Other Sundry expenseEarnings Before Interest & Tax (EBIT)

Less: Interest Expenses

Earnings Before Tax (EBT)Less: Tax

Net Profit After Taxes


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Income Statement (Example)


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The Balance Sheet Equation

Assets

Owners Equity

Liabilities

Assets = Liabilities + Owners Equity


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Assets

Assets are the resources that the firm controls.These Assets benefit the business now and in the future

CashAccounts receivable

InventoryNotes receivablePrepaid expenses

LandBuildings

Equipment,furniture,and fixtures

InvestmentsIntangibleassets:- Patents- Copyrights- Licenses


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Liabilities

Liabilities are the debts of the company.

Notes payableAccounts payableAccrued liabilities(expenses incurred

but not paid)

Loans

bonds


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Shareholders Equity

Capital Retained Earnings

Stockholders (owners) equity is theowners claims to the assets of a corporation.

Reserves


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Balance Sheet (Example)


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Example: Statement of Retained Earnings

Retained earnings, April 1, 200x 0

Add: Net income for the month 5,8005,800

Less: Dividends (2,100)Retained earnings, April 30, 200x 3,700

Month Ended April 30, 200x


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Example: Balance Sheet

As of April 30, 200x

Assets

Cash LE 33,300Accounts receivable 2,000Office supplies 500Land 18,000

Total assets LE 53,800

Liabilities

Accounts Payable LE 100 Stockholders Equity Common stock LE 50,000Retained earnings 3,700Total stockholders Equity LE 53,700Total liabilities andstockholders equity LE 53,800


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Provides information about the cash receipts andcash payments of a business entity during the

accounting period.

Helps investors with questions about the companys Ability to generate positive cash flows. Ability to meet its obligations and to pay dividends. Need for external financing. Investing and financing transactions for the period. Provide information on the utilization of cash. Reports the cash inflows and out flows generated from:

1- Operating activities.2- Investments.3- Financing.

The Cash Flow Statement


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The Statement of Cash Flows must includethe following three sections:

Cash Flows from Operating ActivitiesCash Flows from Investing ActivitiesCash Flows from Financing Activities

Classification of Cash Flows

C N


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Company NameStatement of Cash Flows

Period Covered

Cash flows from operating activities:[List of individual inflows and outflows]Net cash provided (used) by operating activities $ #####

Cash flows from investing activities:

[List of individual inflows and outflows]Net cash provided (used) by investing activities #####

Cash flows from financing activities:[List of individual inflows and outflows]

Net cash provided (used) by financing activities #####Net increase (decrease) in Cash $ #####

Cash (and equivalents) balance at beginning of period #####Cash (and equivalents) balance at end of period $ #####


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General rule:Any transactions that enter into thedetermination of net income are classifiedas operating activities.

Operating Activities


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CashFlowsfrom

InvestingActivities

+

_

from:InflowsSelling investments andplant assets.

Collecting of principal onloans .

to:Outflows

Purchase of investmentsand plant assets.Purchase debt or equity

investments.Make loans.

Investing Activities


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General rule: Any transactions that involved in theacquisitions or disposition of non-currentassets .

Investing Activities


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+

_

Inflows from: Short-term and long-term

borrowing.

Owners (for example, fromissuing stock).

Outflows to:

Make payments onborrowed funds. Owners for dividends. Purchase treasury stock.

Financing Activities

CashFlowsfrom

FinancingActivities


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General rule:

Any transactions involving borrowingfrom creditors, and any transactionsinvolving the owners of a company

Financing Activities

Company Name


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Company NameStatement of Cash Flows

Period Covered

Cash flows from operating activities:[List of individual inflows and outflows]Net cash provided (used) by operating activities $ #####

Cash flows from investing activities:[List of individual inflows and outflows]Net cash provided (used) by investing activities #####

Cash flows from financing activities:[List of individual inflows and outflows]

Net cash provided (used) by financing activities #####Net increase (decrease) in Cash $ #####

Cash (and equivalents) balance at beginning of period #####Cash (and equivalents) balance at end of period $ #####


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Questions

&

Discussion

Documents

corporat financial statements.ppt