ASSIGNMENT#01

Subject: Business Law

Title: “The Judicial system of
Pakistan”

Submitted to: Sir Ryan Ahmad

Submitted by: Adeen Iqbal
Program: M.Com I (1st semester)

NATIONAL COLLEGE OF
BUSINESS ADMISTRATION
& ECONOMICS

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 Financial Statements
Introduction
Financial statements are a mirror that shows a true and fair view of the financial
performance of the last financial year and overall financial position at the end of
the financial year. These are prepared by all those organizations that have financial
transactions whether they are for profit or not for profit organizations.

Definition
“Financial Statements represent a formal record of the financial activities of an
entity. These are written reports that quantify the financial strength, performance
and liquidity of a company. Financial Statements reflect the financial effects of
business transactions and events on the entity”.

Types of Financial Statements

There are broadly four main types of financial statements.
Balance Sheet/Statement of financial position
Income Statement
Cash Flow Statement
Statement of Changes in Equity
These footnotes or explanatory notes to financial statements speak about
inventory method contingent liabilities and explanation to all the important
line items of quantitative financial statements.

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1. Balance Sheet / Statement of Financial Position
Definition
“Statement of Financial Position also known as the Balance Sheet, presents
the financial position of an entity at a given date. It is comprised of the
following three elements”.
Explanation
It is a tabular sheet of balances of assets, liabilities and equity. Assets are normally
classified as current assets and property plant and equipment. There is a great
significance of each and every line item on a balance sheet. As we just noted that
the balance sheet is nothing but a set of balances. Balances can change every day. 
Therefore, a balance sheet is presented at the end of a particular date.
 Assets: Something a business owns or controls e.g. cash, inventory, plant
and machinery etc.
 Liabilities: Something a business owes to someone. Liabilities are
generally further classified into current and long-term liabilities e.g.
creditors, bank loans, etc.
 Equity: What the business owes to its owners. This represents the amount
of capital that remains in the business after its assets are used to pay off its
outstanding liabilities. Equity therefore represents the difference between the
assets and liabilities. Equities are common stock, preferred stock and
retained earnings all shown separately.
Format

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2. Income Statement
Definition
“It is a statement of calculation of the income of a particular period showing net
Sales and all types of expenses.”
“Income Statement also known as the Profit and Loss Statement, reports the
company's financial performance in terms of net profit or loss over a specified
period”.

Explanation
Income statements are presented for a period and not as on a date. It is a statement
which shows the calculation of the income of a particular period. The main
components of an income statement are net sales, operating cost, depreciation and
amortization, interest cost, taxes, preferred dividends, and net income.  All the
components deducted from net sales to arrive at net income. After deduction of
every type of cost you arrive at a different interpretation of income which is
expressed as below:
Earnings before Interest ,Tax, Depreciation and Amortization (EBITDA)
Earnings before Interest and Taxes (EBIT)
Net Income (NI)
Format

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3. Statement of cash flows
Definition
“A cash flow statement is simply a statement of cash generation and its use by
different activities categorized under three different broad activities such as
Operating activities, Investing Activities &Financing Activities”.

Explanation
This report reveals the cash inflows and outflows experienced by an
organization during the reporting period. These cash flows are broken down
into three classifications which are operating activities, investing activities and
financing activities. This document can be difficult to assemble and so is more
commonly issued only to outside parties.
There are many factors that make net income totally different from cash balance
and they are such as;

 Noncash adjustment to net income

 Changes in working capital
 Investment
 Capital Inflow and Outflow
 Dividend Payment
Format

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4. Statement of stockholders equity
Definition
“It is a statement showing the capital investment by stockholders and the retained
earnings of the company”. Statement of Changes in Equity also known as
the Statement of Retained Earnings details the movement in owners' equity over a
period. The movement in owners' equity is derived from the following
components:
 Net Profit or loss during the period as reported in the income statement
 Share capital issued or repaid during the period
 Dividend payments
 Gains or losses recognized directly in equity e.g. revaluation surpluses.
 Effects of a change in accounting policy or correction of accounting error.

Explanation
It is a statement showing the capital investment by stockholders and the retained
earnings of the company like the balance sheet, statement of stockholders equity is
also a statement presented as on a particular date. The two main parts of this
statement common stock and retained earnings and the total of both make it to total
equity. These changes include the issuance or purchase of shares, dividends
issued and profits or losses.

Format

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5. Footnotes to financial statements

Definition
“All other information in the annual report other than quantitative statements like
above is footnotes such as Inventory valuation method contingent liability &
Disclosures etc.”
Explanation
Footnotes are one of the types of financial statements or additional information to
supplement financial statements. It will be misleading for investors if they do not
understand the financial statements in their true sense. Footnotes help in clarifying
how financial statements are prepared. They provide information about inventory
valuation method and contingent liability etc. They also provide with the
disclosures with respect to compliance with Standardized Accounting Principles.
In the US Generally Accepted Accounting Principles (GAAP) is followed and
IFRS is the International Standard for Reporting.

Format

THE END
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