Complete financial reporting

CHAPTER 11: FINANCIAL REPORTING

I. Overview of Financial Reporting

Information generated by accounting information systems are vital to the

assessment made by both internal and external users about the effectiveness and

efficiency of the company’s operations. Financial Reporting’s main goal is to provide

useful information to financial statement users so that proper decisions can be made. Data

presented should be comprehensive so that a good understanding of the entity's activities

is possible. Financial information should aid in the evaluation of the amounts, timing, and

uncertainties of cash flows. Also, financial reporting should furnish information about the

firm's economic resources, claims against those resources, owners' equity, and changes in

resources and claims. Hence, Financial Reporting in the Philippines is governed by

standards to ensure that these matters are made available in the Financial Statements.

Financial Reports does not mainly focus on financial matters regarding the

company. Nonfinancial information like financial ratios, financial highlights, financial

statement analysis, major product description, are also vital so that users of the financial

reports can have a proper assessment of the company’s operations.

Financial Statements are the means by which the information accumulated and

processed in the accounting system is communicated to users. The basic financial

statements of an enterprise include the 1) balance sheet (or statement of financial

position), 2) income statement, 3) cash flow statement, and 4) statement of changes in

owners' equity or stockholders' equity and 5) notes to financial statements. These

financial statements show all aspects of the operations of the business for the current

year, hence, it shows management’s stewardship in handling the company’s resources.

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PARAMOUNT CONSTUCTION SUPPLIES INC.


II. Description of Financial Statements

Statement of Financial Position

The Statement of Financial Position is a financial statement that provides a

summary of a business's position at a given point in time, including its assets (economic

resources), its liabilities (financial debts or obligations), and its total or net worth. It is

used to evaluate the company’s liquidity, solvency, financial structure, and capacity for

adaptation.

Statement of Financial Performance

The Statement of Financial Performance presents the results of a company's

operations for a given reporting period. A company's net income for an accounting period

is measured as follows: Net income Revenues Expenses Gains Losses. It provides

information concerning return on investment, risk, financial flexibility, and operating

capabilities

Statement of Changes in Shareholders’ Equity

This statement explains the changes in a company's retained earnings over the

reporting period. They break down changes in the owners' interest in the organization,

and in the application of retained profit or surplus from one accounting period to the next.

Line items typically include profits or losses from operations, dividends paid, issue or

redemption of stock, and any other items charged or credited to retained earnings.

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http://www.answers.com/topic/dividend

http://www.answers.com/topic/accounting-period-1

http://www.answers.com/topic/retained-earnings


Cash Flow Statement

A cash flow statement is a financial report that describes the source of a

company's cash and how it was spent over a specified time period. Because of the

varied accrual accounting methods companies may employ, it is possible for a company

to show profits while not having enough cash to sustain operations. A cash flow

statement neutralizes the impact of the accrual entries on the other financial statements. It

also categorizes the sources and uses of cash to provide the reader with an understanding

of the amount of cash a company generates and uses in its operations, as opposed to the

amount of cash provided by sources outside the company, such as borrowed funds or

funds from stockholders. The cash flow statement also tells the reader how much money

was spent for items that do not appear on the income statement, such as loan repayments,

long-term asset purchases, and payment of cash dividends.

Notes to Financial Statements

Notes to financial statements are additional notes and information added to the

end of financial statements to supplement the reader with more information. Notes to

financial statements help the computation of specific items in the financial statements as

well as provide a more comprehensive assessment of a company's financial condition.

Notes to financial statements can include information on debt, going concern,

accounts, contingent liabilities, or contextual information explaining the financial

numbers (e.g. to indicate a lawsuit).

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http://www.answers.com/topic/contingent-liability-1

http://www.answers.com/topic/account-accountancy

http://www.answers.com/topic/going-concern

http://www.answers.com/topic/debt

http://www.answers.com/topic/financial-statements

http://www.answers.com/topic/financial-statements

http://www.answers.com/topic/stockholder

http://www.answers.com/topic/accounting-methods


III. Proforma Financial Statements

PARAMOUNT CONSTUCTION SUPPLIES INC.COMPARATIVE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR HOME OFFICE AND BRANCHDECEMBER 31, 200A AND 200B

ASSETSNOTE

200A

200B

Current Assets

Cash and Cash Equivalents 3 XXX

XXX

Trade and Other Receivables 4XXX

XXX

Inventories 5XXX

XXX

Prepaid Expenses 6XXX

XXX

Total Current AssetsXXX

XXX

Noncurrent Assets

Property, Plant and Equipment 7XXX

XXX

Other Noncurrent Assets 8XXX

XXX

Total Noncurrent AssetsXXX

XXX

TOTAL ASSETSXXX

XXX

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

Trade and Other Payables 9XXX

XXX

Accrued Expenses 10XXX

XXX

Loans Payable - Current PortionXXX

XXX

Total Current LiabilitiesXXX

XXX

Noncurrent Liabilities

Loans Payable - Noncurrent PortionXXX

XXX

Deferred Tax LiabilityXXX

XXX

Total Noncurrent LiabilitiesXXX

XXX

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TOTAL LIABILITIESXXX

XXX

SHAREHOLDERS' EQUITY

Share CapitalXXX

XXX

Reserves 11XXX

XXX

Retained EarningsXXX

XXX

TOTAL SHAREHOLDERS' EQUITYXXX

XXX

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

XXX

XXX

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PARAMOUNT CONSTUCTION SUPPLIES INC.COMPARATIVE CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE

FOR HOME OFFICE AND BRANCH

FOR THE YEARS ENDED DECEMBER 31, 200A AND 200B

NOTE 200A 200B

Sales XXX XXX

Cost of Goods Sold XXX XXX

Gross Profit XXX XXX

Other Income 12 XXX XXX

Total Income XXX XXX

Selling Expense 13 XXX XXX

Administrative Expenses 14 XXX XXX

Other Expenses 15 XXX XXX

Finance Cost 16 XXX XXX

Profit Before Tax XXX XXX

Income Tax XXX XXX

NET INCOME XXX XXX

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PARAMOUNT CONSTUCTION SUPPLIES INC.COMPARATIVE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR HOME OFFICE AND BRANCH

FOR THE YEARS ENDED DECEMBER 31, 200A AND 200B

Share Capital Reserves

Retained Earnings Total Equity

200A

200B

200A

200B 200A 200B 200A 200B

Beginning BalanceXXX

XXX

XXX

XXX XXX XXX XXX XXX

Correction of Fundamental Errors XXX XXX XXX XXX

Changes in Accounting Policy XXX XXX XXX XXX

Adjusted BalanceXXX

XXX

XXX

XXX XXX XXX XXX XXX

Issuance of Shares above parXXX

XXX

XXX

XXX XXX XXX

Profit for the Period XXX XXX XXX XXX

Dividends(XXX

)(XXX

)(XXX

)(XXX

)

Appropriation for ContingenciesXXX

XXX

(XXX)

(XXX)

Ending BalanceXXX

XXX

XXX

XXX XXX XXX XXX XXX

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PARAMOUNT CONSTUCTION SUPPLIES INC.COMPARATIVE CONSOLIDATED CASH FLOWS STATEMENT

FOR HOME OFFICE AND BRANCHFOR THE YEARS ENDED DECEMBER 31, 200A AND 200B

200A 200BCash Flow from Operating ActivitiesCash Collected from customers XXX XXXCash payment for:

Purchase of inventoriesXXX

XXX

Operating expensesXXX

XXX

Selling and administrative expensesXXX

XXX

Income taxXXX

(XXX)

XXX

(XXX)

Net cash provided by operating activities XXX XXX

Cash Flow from Investing Activities

Purchase of equipment(XXX

)(XXX

)Disposal of equipment XXX XXXNet cash used in investing activities XXX XXX

Cash Flow from Financing Activities

Net borrowingsXXX

XXX

Issuance of sharesXXX XXX

XXX XXX

Payment of cash dividendsXXX

XXX

Interest ExpenseXXX

XXX

Payment of principalXXX

(XXX)

XXX

(XXX)

Net cash provided by financing activities XXX XXX

Net change in cash during the period XXX XXXCash, Beginning XXX XXX

Cash, End XXX XXX

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PARAMOUNT CONSTUCTION SUPPLIES INC.Notes to Financial Statements

Note 1 General Information

PACO Supplies Inc. is the name behind the many prominent hardware stores that

caters a wholesale, retail and consignment of hardware and construction supplies. The

company is engaged in the sales and distribution of construction materials in Bacolod, as

well as in its outlying cities, towns and municipalities of Negros Occidental and Oriental.

It offers a complete line of structural building materials, such as cement, steel bars, G.I.

sheets, plywood and other hardware items. The company employs internal controls which

are strictly implemented to safeguard assets and to ensure that processes in its operation

are properly executed so as to maintain an environment that upholds integrity. Moreover,

it aims to eventually generate profit without sacrificing any morals and business ethics

that should be preserved in every transaction that takes place.

Note 2- Summary of Significant Accounting Policies

The accounting policies employed by the company as shown in the Financial

Statement are as follows:

Measurement Basis -The historical cost is the measurement basis used by the

company on which the entire financial statements are prepared.

Method of Accounting -The company uses the Accrual method of accounting in

recognizing revenue and expenses. Under this method, income is recognized when earned

regardless of when received and expense is recognized when incurred regardless of which

paid.

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Method of Depreciation -The company uses the straight line method of

accounting for depreciation. This is based on the theory that periods benefited by the use

of the asset should bear an equal or equitable share of the cost of the asset because this

method considers depreciation as a function of time than usage. Cost model for

accounting of properties are observed by the company.

Accounting for Inventories- The company uses the Perpetual system of

accounting for inventory. Under this method, the Inventory Master File shows the

summary of inventory movement.

Use of Estimates - The estimates employed by the company in the preparation of

the Financial Statements are made in conformity with the Philippine Financial Reporting

Standards.

Note 3 – Cash and Cash Equivalents

Cash on Hand Php XXX

Cash in Bank (Checking) XXX

Cash in Bank (Payroll) XXX

Petty Cash Fund XXX

Cash Equivalents XXX

TOTAL Php XXX

Note 4 – Trade and Other Receivables

Accounts Receivables Php XXX

Allowance for Doubtful Accounts (XXX)

Net Realizable Value Php XXX

Notes Receivables XXX

Interest Receivables XXX

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Advances to Officers and Employees XXX

Advances to Suppliers XXX

TOTAL Php XXX

Note 5 – Inventories

Merchandise Inventory Php XXX

Consigned Goods XXX

TOTAL Php XXX

Note 6– Prepaid Expenses

Prepaid Taxes and Licenses Php XXX

Prepaid Insurance XXX

Office Supplies XXX

TOTAL Php XXX

Note 7 – Property, Plant and Equipment

Land Php XXX

Land Improvements XXX

Accumulated Depreciation (Land Improvements) XXX XXX

Building XXX

Accumulated Depreciation (Building) XXX XXX

Office Furniture and Fixtures XXX

Accumulated Depreciation (Office Furniture and Fixtures) XXX XXX

Store Furniture and Fixtures XXX

Accumulated Depreciation (Store Furniture and Fixtures) XXX XXX

Delivery Trucks XXX

Accumulated Depreciation (Delivery Trucks) XXX XXX

TOTAL Php XXX

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Note 8 – Other Noncurrent Assets

Long Term Advances to Suppliers Php XXX

Long Term Advance to Officers XXX

Deferred Tax Assets XXX

TOTAL Php XXX

Note 9 – Trade and Other Payables

Accounts Payable Php XXX

Notes Payable (Current) XXX

Income Tax Payable XXX

Withholding Tax Payable XXX

Dividends Payable XXX

SSS, Philhealth and Employee Compensation Contribution XXX

Undelivered Goods XXX

TOTAL Php XXX

Note 10 – Accrued Expenses

Accrued Salaries and Wages Php XXX

Accrued Interest XXX

Accrued Utilities XXX

TOTAL Php XXX

Note 11 – Reserves

Asset Revaluation Surplus Php XXX

Appropriated Retained Earnings XXX

TOTAL Php XXX

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Note 12 – Other Income

Other Income Php XXX

Cash Overage XXX

TOTAL Php XXX

Note 13 – Selling Expenses

Sales Salaries Expenses Php XXX

Depreciation Expense (Store Furniture and Fixtures) XXX

Insurance Expenses (Delivery Trucks) XXX

Depreciation Expense (Delivery Trucks) XXX

Miscellaneous Selling Expenses XXX

TOTAL Php XXX

Note 14 – Administrative Expenses

Office Salaries Expense Php XXX

Doubtful Accounts Expense XXX

Legal Fees XXX

Office Supplies Expense XXX

Utilities Expense XXX

Repairs and Maintenance XXX

Depreciation Expense (Land Improvements) XXX

Depreciation Expense (Building) XXX

Depreciation Expense (Office Furniture and Fixtures) XXX

Provision for Income Tax XXX

Charitable Contribution Expense XXX

TOTAL Php XXX

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Note 15 – Other Expenses

Other Expenses Php XXX

Cash Shortage XXX

TOTAL Php XXX

Note 16 – Finance Cost

Interest Expense Php XXX

Bank Charges XXX

TOTAL Php XXX

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Complete financial reporting