UNISA SBL

MBL 4807 MBA 4807 PBA4807

Accounting for Managers NQF 8
Study school 2024 – Financial Reporting
 Financial reporting

Financial accounting generally

INTEGRITY
refers to the process that
results in the preparation and
reporting of financial
OBJECTIVITY
statements for an entity.

INDEPENDENCE Financial accounting is

primarily externally oriented
and concerned with the
COMPETENCE historical results of an entity’s
performance.

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 Accounting equation

Assets =
Owners Equity + Liabilities

BALANCE

Resources of a company and

the claims to those resources
A = OE + L

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 Elements

• Economic resources
Assets • Produce future benefits

• Present obligations
Liabilities • Result in an outflow of economic benefits
• What the business owes to “outsiders”.

• Represents shareholders’ residual claim to the entity’s

Equity assets / What the business owes the owners / “insiders”

• Increases in economic benefits during an accounting

Income period

• Decreases in economic benefits during an accounting

Expenses period

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 Financial reporting

To DETERMINE YOUR
PERSONAL EQUITY
=
OWNED less OWING

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 Financial reporting
What you own and what you owe have lives
greater than twelve months or lives less than
twelve months.

Owe = liability Own = asset

Long-term Short-term

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 Financial statements

Income Statement of
Statement Changes in Equity

Statement of
Balance Sheet
Cash Flows

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 BALANCE SHEET

Statement of financial position reports on assets,

liabilities and stockholders equity (shareholders
equity)

Moment in time

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 Assets
• Future economic benefits
– used singly or in combination with other
assets in the production of goods or
services to be sold by the entity;
– exchanged for other assets;
– used to settle a liability; or
– distributed to the owners of the entity.

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 Total assets

Long-term assets = Fixed Assets

Short-term assets = Current Assets

Total Assets

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 Noncurrent / fixed assets

Land

Buildings

Equipment

Intangible Assets

Natural Resources
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 Current assets
Current assets include cash and those assets that are
expected to be converted to cash or used up within one
year, or an operating cycle, whichever is longer.

Cash Prepaid
Expenses

Receivables

Short-term Inventories
Securities

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 Total assets
NON-CURRENT ASSETS 1 350 000
Property, Plant & Equipment 1 120 000
Patents & trademarks 50 000
Investments 180 000

CURRENT ASSETS 420 000

Inventory 160 000
Trade & other debtors 250 000
Bank 10 000

TOTAL ASSETS 1 770 000

In business we expect what you own is used productively.

Your assets should be used to provide service delivery.
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 Liabilities
Settlement of a present obligation
– payment of cash
– transfer of other assets
– provision of services
– replacement of that obligation with another
obligation
– conversion of the obligation to equity

LIABILITIES

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 Total liabilities

Long-term liabilities = Non-current liabilities

Short-term liabilities = Current liabilities

Total liabilities

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 Equity
• Defined as a residual
• In a for-profit organisation,
– funds contributed by shareholders,
– retained earnings,
– reserves representing appropriations of
retained earnings and
– reserves representing capital maintenance
adjustments may be shown separately.

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 Total equity and liabilities
SHAREHOLDERS’ EQUITY 1 150 000
Issued Share Capital 500 000
Accumulated Profits 650 000

NON-CURRENT LIABILITIES 150 000

Interest bearing borrowings

CURRENT LIABILITIES 470 000

Trade & other creditors 300 000
Dividends proposed 90 000
Bank Overdraft 80 000
TOTAL LIABILITIES 620 000
TOTAL EQUITY and LIABILITIES 1 770 000

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Assets = owners equity + liabilities
Balance sheet
NON-CURRENT ASSETS 1350 000
CURRENT ASSETS 420 000
TOTAL ASSETS 1770 000

SHAREHOLDERS’ EQUITY 1150 000

NON-CURRENT LIABILITIES 150 000
CURRENT LIABILITIES 470 000
TOTAL LIABILITIES 620 000

TOTAL EQUITY and LIABILITIES 1770 000

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 INCOME STATEMENT

The statement of comprehensive income reports

revenues and expenses for the period

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 Income statement

• Reports two main categories

– Revenues and gains
– Expenses and losses

• Shows the “bottom line”

– Net income or net loss for the period

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 Income
 Increase in economic benefits during the accounting
period
 Inflows or enhancements of assets or decreases of
liabilities that result in increases in equity, other than
those relating to contributions from equity
participants.

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 Income
 Various kinds of assets may be received
or enhanced by income;
 cash,
 receivables
 goods and services received in exchange for
goods and services supplied.

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 Expenses
 Decreases in economic benefits during the
accounting period
 Outflows or depletions of assets or
incurrences of liabilities that result in
decreases in equity, other than those relating
to distributions to equity participants.

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 Income statement

Revenue 600 000

Cost of sales (120 000)
Gross profit GP 480 000

OPERATING EXPENSES (300 000)

Selling & Admin Expenses
Operating profit OP 180 000

Finance costs ( 20 000)

Profit before tax PBT 160 000

Income tax expense (50 000)

PROFIT AFTER TAX PAT 110 000

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 Statement of Cash Flows
• The statement of cash flows provides a
summary of the cash flows over the period
of concern, typically the year just ended.

• This statement not only provides insight

into a company’s investment, financing and
operating activities, but also ties together
the income statement and previous and
current balance sheets.

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Business activities

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 Statement of cash flow
Statement of Cash Flows
For the year ended December 31, 2010
Cash flows from operating activities $$$,$$$
Cash flows from investing activities $$,$$$
Cash flows from financing activities $$,$$$
Net cash flows $$,$$$
Cash balance, December 31, 2009 $$,$$$
Cash balance, December 31, 2010 $$,$$$

2 Questions………….
Where did the company get its money from?
What did the company spend its money on?

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 Cash flow categories

Operating Investing Financing

• Create • Relate to • Obtain
revenue, non- cash from
expenses, current and pay
gains and assets cash to
losses investors
and
creditors

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 Examples of cash flow activities

Collections from customers

Payments to employees
Receipts of interests & dividends Operating
Payments of interest & income tax
Sale of short-term investments Activities
Purchase of short-term investments
Other operating receipts
Other operating payments

Sale of PPE Acquisition of PPE

Investing
Sale of long-term investments Purchase of long-term investments
Activities
Collections of loans from others Making loans to others

Payment of dividend
Issuance of shares
Financing Repurchase of shares
Sale of treasury shares
Activities Purchase of treasury shares
Proceeds from loans & borrowings
Payment of debt principal

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 Operating activities

• Reconciles from net

Indirect income to cash

provided by operating
activities

• Reports all cash

Direct receipts and cash

payments from
operating activities

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 Indirect method

Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
+ Depreciation/depletion/amortization expense
+ Loss on sale of long-term assets
- Gain on sale of long-term assets
- Increases in current assets other than cash
+ Decreases in current assets other than cash
+ Increases in current liabilities
- Decreases in current liabilities
= Net cash provided by operating activities

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 Direct method

Receipts:
Collections from customers
Interest and dividends

Payments:
To suppliers
To employees
For interest and income
taxes

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 Tel: +27 11 652 0214/0000
www.unisa.ac.za/sbl

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