FINANCIAL STATEMENTS

PURPOSE
To report the business financial
performance and position to external
users of accounting information
Reflects the transactions of the
business
Assists in determining underlying
trends in the financial position of the

MAIN FINANCIAL STATEMENTS

 Balance Sheet (or Statement of

Financial Position)
Income Statement (or Profit and Loss
Account or Statement of
Comprehensive Income)
Statement of Cash Flows
Statement of Changes in Equity (or
Statement of Retained Earnings)

BALANCE SHEET

BALANCE SHEET
Presents the financial position of an entity at a given
date.
Helps users to assess the financial soundness of an
entity in terms of liquidity risk, financial risk, credit
risk and business risk.
Comprised of three main components:
Assets
Liabilities
Equity

ASSETS
Something that an entity owns or controls in order
to derive economic benefits from its use.
Classified as current or non-current depending on
the duration over which the entity derives
economic benefit from its use.
Non-current, expected to be realized over a long term.
Examples are properties, land, equipment, goodwill, etc.
Current, expected to be realized within one year.
Examples are cash, inventories, receivables, etc.

LIABILITIES
It is an obligation that a business owes to someone.
Its settlement involves transfer of cash or other resources.
Classified as current or non-current depending on the
duration over which the entity intends to settle the
liability.
Non-current, expected to be settled over a long term. Examples
are long term borrowings and bonds.
Current, expected to be settled within one year. Examples are
short-term borrowings, cash and trade payables, tax payables,
etc.

EQUITY
It is what the business owes to its owners.
It is derived by deducting total liabilities from the total
assets.
It represents the residual interest in the business that
belongs to owners.
Present under the following categories:
Share Capital represents the amount invested by the owners in
the entity.
Retained Earnings comprises the total net profit or loss retained
in the business (after distribution of dividends)

WHY THE BALANCE SHEET

MUST ALWAYS BALANCE?

INCOME STATEMENT

INCOME STATEMENT
It is a report of income, expenses and the
resulting profit or loss earned during an
accounting period.
Provides the basis for measuring performance of
an entity over the course of an accounting period.
Change in sales revenue in comparison to industry
Change in gross profit margin, operating profit margin
and net profit margin
Comparison of the entitys profitability with other
organizations

Forms the basis of important financial evaluation

WHAT IS IN AN INCOME STATEMENT?

REVENUE
COST OF SALES
OTHER INCOME
ADMINISTRATIVE EXPENSES
FINANCE CHARGES

STATEMENT OF CASH FLOWS

STATEMENT OF CASH FLOWS

Presents the movement in cash flows over the
period as classified under operating, investing,
and financing activities.
Provides important insights about the liquidity
and solvency of a company.
It is sometimes used to project future cash
flows.
Serves to highlight priorities of management.

OPERATING ACTIVITIES
Preparation
Starting point would be the profit before tax in the
income statement
Elimination of non-cash expenses
Removal of expenses to be classified elsewhere in the
cash flow statement (i.e. interest expense)
Elimination of non-cash income
Removal of income to be presented elsewhere in the
statement (i.e. interest income)
Working capital charges

INVESTING ACTIVITIES
Preparation:
Cash outflow expended on the purchase
of investments and fixed assets
Cash inflow from income from
investments
Cash inflow from disposal of
investments and fixed assets

FINANCING ACTIVITIES
This includes the following:
Proceeds from issuance of share capital,
debentures and bank loans
Cash outflow expended on the cost of
finance
Cash outflow on the repurchase of share
and repayment of debentures and loans

STATEMENT OF CHANGES IN
EQUITY

STATEMENT OF CHANGES IN EQUITY

Provides the following information:
Net profit or loss during the accounting period
attributable to shareholders
Increase or decrease in share capital reserves
Dividend payments
Gains and losses recognized directly in equity
Effects of changes in accounting policies
Effect of correction of prior period error

NOTES TO FINANCIAL
STATEMENTS

NOTES TO FINANCIAL STATEMENTS

This refer to additional information provided in a
companys financial statements.
Report additional details and information that
are left out in the main financial statements.
Done for the sake of clarity.
Put it a separate statement as it is long and
would cloud the data in the financial statements
if included therein.

THANK YOU.