Financial Statements

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ESP Educational Class

Mrs.ET Sopheak

Tel: 012289363 /0976469625

Introduction of Accounting

• Accounting: The process of identifying, recording and communicating the economic events of a business to interested users of the information.
• Accounting equation: The equation that states that Assets= Liabilities+ Shareholder's Equity.
• Assets: The resources owned or controlled by a business that provide future economic benefits.
• Liabilities: The debts and obligations of a business. Liabilities are claims of lenders and other creditors on the assets of a business.
• Shareholders’ equity: The shareholders’ claim on total assets, represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the company.
• Retained earnings: The amount of accumulated profit (less losses, if any), from the prior and current periods, that has been kept in the corporation for future use and not distributed to shareholders as dividends.
• Revenue (also known as income): The increase in economic benefits that result from the operating activities of a business, such as the sale of a product or provision of a service.
• Expenses: The decrease in economic benefits that result from the costs of assets consumed or services used in ongoing operations to generate revenue
• Share capital: Shares representing the ownership interest in a corporation. If only one class of shares exists, it is known as common shares.
• Dividends: The distribution of retained earnings from a corporation to its shareholders, oft en in the form of cash.

The purpose of accounting is to provide useful information for decision making. Th ere are two types of groups who use accounting information: internal users and external users. Internal users work for the business and need accounting information to plan, organize, and run operations. Th e primary external users are investors and lenders and other creditors. Investors (existing and potential shareholders) use accounting information to help decide whether to buy, hold, or sell shares. Lenders (such as bankers) and other creditors (such as suppliers) use accounting information to evaluate the risk of loaning money or granting credit to a business.

Essential Keys of Financial statements

Financial statements are classified in 4 kinds:

• The Income Statement: The Income Statement (Profit and Loss) records all income and expenses of the business during a specified time period, and is the accepted method of determining profits and losses.

Total Incomes- Total Expenses=Net Income/Loss

• A Statement of Owner's Equity: A Statement of Owner's Equity  shows the changes in the capital account due to contributions (Investment/ Capital- in), withdrawals, and net income or net loss. Capital is increased by owner contributions and income, and decreased by withdrawals and expenses.

Beginning Equity+Additional Investment +Net Income-Net Loss-Withdraws-Dividend =Ending Equity

• Balance Sheet: Balance Sheet shows, at a given date, the company’s financial position: – the economic resources (assets) it controls and – where its finance comes from (liabilities and equity). From an economic point of view: Represents financial resources received either from shareholders (equity) or from external agents (liabilities) that allow the firm to make the necessary investments (assets) in order to be able to develop its business.

Total Assets=Total Liabilities+Total Equity 

• Statement of Cash Flow: Statement of Cash Flow may be defined as a summary of receipts and disbursements of cash for a particular period of time. It also explains reasons for the changes in cash position of the firm. Cash flows are cash inflows and outflows. Transactions which increase the cash position of the entity are called as inflows of cash and those which decrease the cash position as outflows of cash. Cash flow Statement traces the various sources which bring in cash such as cash from operating activities, sale of current and fixed assets, issue of share capital and debentures etc. and applications which cause outflow of cash such as loss from operations, purchase of current and fixed assets, redemption of debentures, preference shares and other long-term debt for cash. In short, a cash flow statement shows the cash receipts and disbursements during a certain period.

Beginning Cash Flow+Cash Flow from Operating Activities+Cash Flow from Investing Activities +Cash Flow of Financing Activities =Ending Cash (Actual Cash)

Please click to download file PDF below:

• Financial Statement Analysis PDF

Thanks 

Mrs.ET Sopheak 

Lecturer in Economics