Financial

Statement

What is the
importance of
preparing financial
statements in a
business?
 Financial statement
-is a formal record of the financial activities and
position of a business, person, or other entity.
-relevant financial information is presented in a structured
manner and in a form easy to understand

The objective of financial statement is to provide

information about the financial position,
performance, and changes in financial position of an
enterprise that is useful to wide range of users in
making economic decisions.
Basic Financial
Statements
I. Balance Sheet or
Statement of
Financial Position
II. Income Statement or
Profit and Loss
Statement
III.Cash Flow Statement

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 Balance Sheet

Presents the financial position

of an organization at a
specified date.
It consists of three main parts:
1.Assets
2.Liabilities
3.Owner’s Equity
Basic accounting equation : Assets= Liabilities + Owner’s
Equity
 ASSE
- include anything that is
owned by the entity that has
TS
monetary value.

Assets should be grouped into two:

1. Current assets – are those
expected to be realized in the span
of one year from the reporting
date.
2. Non-current assets – are
those that can provide economic
benefits to the company of over
than a year.
Category of
Assets:
a. Tangible and intangible
• includes property, plant and equipment , and those without
physical substance like goodwill.
b. Inventories balance
• Includes goods that are held for sale in the ordinary course of
the business such as raw materials, finished goods and works
in progress.
c. Trade receivables
• Include the amounts that are payables from customers
upon credit sales. These are presented in the Balance
Sheet after
d. Cash andsubtracting
Cash the allowance for bad debts.
equivalents
• Include cash in hand together with any short term
investments that are easily convertible to cash.
2. Liabilities
Is an obligation that a business owes to someone
and its payment could be in cash or other resources.
Liabilities are classified into two:
1.Current liabilities – are expected to be
settled in one year.
2.Non-current liabilities – can be settled for
more than a year

Presentation Title 7
Category of
Liabilities:
a. Trade and other payables
• includes liabilities payable to supplier and contractors for credit
purchases. Sundry payables which are too small to be presented
alone in this category.
b. Short term borrowing
• Includes bank overdrafts and short term bank loans with a
repayment timetable of under 12 months.
c. Long term borrowings
• Include loans which are to be settled up for more than
one year.
d. Current Tax payable
• Usually presented as a separate line item in the Balanc
Sheet because of the importance of this amount.
Statement of Financial Position ( Balance Sheet)
_______ , as of October 15, 2023

Assets
Cash 1, 000
Inventory 2,000
Total Assets 3,000

Liabilities
Expense 2,000

Owner’s Equity
Lahid, Capital 1,000

Total Liabilities and OE 3,000

3. Equity

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 The purpose of the balance sheet for
a new business is that:

1. It indicates the capital need of the

business
2. It helps to identify the allocation
of resources
3. It calculates the requirement of
seed money you put up
4. It estimates how much finance is
required.

Presentation Title 11
Income Statement /Profit and Loss
Statement
- a summary of a company’s total revenue and its
Cost of
operating expenses for a given period such as per month,
per quarter of a year or for Goods
one year.
Sold
Operatin
Includes all of the cost g
and expenses directly
Expenses
Sales related to the production
of goods and services
Include expenses
Represent Gross incurred everyday
s the total Profit in the operation of
amount of The profit of the a business
revenue company after
subtracting the expenses
Presentation Title
related to manufacturing 12
and selling its products
Statement of Comprehensive Income ( Income Statement)
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 Business Name
Statement of Cash Flow
For the Period _____________

Day 1 Day 2 Day 3 Day 4 Day 5

Starting Cash
balance

Add: Positive
cash Flows

Less: Negative
Cash Flows

Ending Cash
Balance
Thank you!