Piodos, Krizzia Fatima

ACTIVITY

1. Research the 5 financial statements and its importance to the business.

2. What is office management? Discuss the managerial functions of office.

Answers
1. Five types of Financial Statements:
1) Income Statement:
 one of the financial statements of an entity that reports three main
financial information of an entity for a specific period of time. That
information includes revenues, expenses, and profit or loss for the period
of time.
 sometimes called the statement of financial performance because this
statement lets the users assess and measure the financial performance of
an entity from period to period of the similar entity, competitors, or the
entity itself.
In conclusion, if the users want to see how much the entity makes sales, how
much are the expenses incurred and how much is the profit or loss during the
period, then income statement is the statement that the user should be looking
for.
The detail of this three main information are:
 Revenues:
refer to sales of goods or services that the entity generates during
the specific accounting period.
 Expenses:
operational costs that occur in the entity for a specific accounting
period.
 Profit or Loss:
refers to net income or the bottom line of the income statement that
results from deducting expenses from revenues.

2) Balance Sheet:
 sometimes called the statement of financial position. It shows the balance
of assets, liabilities, and equity at the end of the period of time.
 sometimes called the statement of financial position since it shows the
values of the net worth of the entity. You can find entity net worth by
removing liabilities from total assets.
It is different from the income statement since the balance sheet reports
account’s balance at the reporting date while income statement reports that the
account’s transactions during the reporting period.
If the user of financial statements wants to know the entity’s financial position,
then the balance sheet is the statement the user should looking for.
 Assets:
  resources own by an entity legally and economically. For
example, building, land, cars, and money are types of assets
of the entity. Assets are classified into two main categories:
Current Assets and Noncurrent Assets.
 Current Assets refer to short term assets including cash on
hand, petty cash, raw materials, work in progress, finished
goods, prepayments, and a similar kind that convert and
consume within 12 months from the reporting date.
 Noncurrent assets including tangible and intangible assets
that expected to convert and consume in more than 12
months from the reporting date. Those assets include land,
building, machinery, computer equipment, long term
investment and similar kind of.
 Intangible fixed assets are charged into income statements
systematically based on their using and contribution.
In the accounting equation, assets equal to liabilities plus equities. They
are increasing on debit and decreasing credit.
 Liabilities:
 the obligation that an entity owes to other persons or entities.
 The same as assets, liabilities are classified into two types:
Current Liabilities and Non-current liabilities. The liabilities
are the balance sheet items and they represent the amount
at the end of the accounting period.
 A current liability is an obligation that is due within one year.
In other words, the entity is expected to pay or willing to pay
back the debt with one year.
 Non-current liabilities are the debt or obligation that due to
more than one year or more than twelve months.
 Equity:
 the difference between assets and liabilities. The items in
equity include share capital, retain earning, common stock,
prefer sock, and reserves.
 The change of assets and liabilities over the period will affect
the net value of equity. You can calculate the net value of
equity of an entity by removing liabilities from assets.
 The net income or loss from the income statement during the
period will be added to the opening balance of retained
earnings or accumulated loss.

3) Statement of Change in Equity:

 one of the financial statements that show the shareholder contribution, and
movement in equity. and equity balance at the end of the accounting period.
 Information that shows is these statements include classification of share capital,
total share capital, retain earning, dividend payment, and other related state
reserves.
4) Statement of Cash Flow:
 one of the financial statements that show the movement of the entity’s cash
during the period. This statement help users understand how is the cash
movement in the entity.
 There are three sections in this statement. They are cash flow from the
operation, cash flow from investing, and cash flow from financing activities.
 In general, the information will be shown base on the method of cash flow that
the entity prepares. It includes direct and indirect methods.

5) Noted to Financial Statements:

 the important statement that most people forget about.
 This is the mandatory requirement by IFRS that entity has to disclose all
information that matters to financial statements and help users to have a better
understanding.
 Note or sometimes call disclosure detail the financial information related to the
specific accounts. For example, in the balance sheet, you will see the balance of
fixed assets.

Importance of Financial Statements:

The importance of financial statements lies in their utility to satisfy the varied interest of
different categories of parties such as management, creditors, public, etc.

1. Importance to Management:
Increase in size and complexities of factors affecting the business operations
necessitate a scientific and analytical approach in the management of modern business
enterprises.
The management team requires up to date, accurate and systematic financial
information for the purposes. Financial statements help the management to understand
the position, progress and prospects of business vis-a-vis the industry.
By providing the management with the causes of business results, they enable
them to formulate appropriate policies and courses of action for the future. The
management communicates only through these financial statements, their performance
to various parties and justify their activities and thereby their existence.
A comparative analysis of financial statements reveals the trend in the progress
and position of enterprise and enables the management to make suitable changes in
the policies to avert unfavorable situations.

2. Importance to the Shareholders:

Management is separated from ownership in the case of companies.
Shareholders cannot, directly, take part in the day-to-day activities of business.
However, the results of these activities should be reported to shareholders at the annual
general body meeting in the form of financial statements.
These statements enable the shareholders to know about the efficiency and
effectiveness of the management and also the earning capacity and financial strength of
the company.
 By analyzing the financial statements, the prospective shareholders could
ascertain the profit earning capacity, present position and future prospects of the
company and decide about making their investments in this company.
Published financial statements are the main source of information for the
prospective investors.

3. Importance to Lenders/Creditors:
The financial statements serve as a useful guide for the present and future
suppliers and probable lenders of a company.
It is through a critical examination of the financial statements that these groups
can come to know about the liquidity, profitability and long-term solvency position of a
company. This would help them to decide about their future course of action.

4. Importance to Labor:
Workers are entitled to bonus depending upon the size of profit as disclosed by
audited profit and loss account. Thus, P & L a/c becomes greatly important to the
workers. In wages negotiations also, the size of profits and profitability achieved are
greatly relevant.

5. Importance to the Public:

Business is a social entity. Various groups of society, though directly not
connected with business, are interested in knowing the position, progress and prospects
of a business enterprise.
They are financial analysts, lawyers, trade associations, trade unions, financial
press, research scholars and teachers, etc. It is only through these published financial
statements these people can analyze, judge and comment upon business enterprise.

6. Importance to National Economy:

The rise and growth of corporate sector, to a great extent, influence the
economic progress of a country. Unscrupulous and fraudulent corporate managements
shatter the confidence of the general public in joint stock companies, which is essential
for economic progress and retard the economic growth of the country.
Financial Statements come to the rescue of general public by providing
information by which they can examine and assess the real worth of the company and
avoid being cheated by unscrupulous persons.
The law endeavors to raise the level of business morality by compelling the
companies to prepare financial statements in a clear and systematic form and disclose
material information.

This has increased the confidence of the public in companies. Financial statements are
also essential for the various regulatory bodies such as tax authorities, Registrar of
companies, etc. They can judge whether the regulations are being strictly followed and
also whether the regulations are producing the desired effect or not, by evaluating the
financial statements.
2. Office management involves the planning, design, implementation of work in an
organization and its offices. This includes creating a focused work environment, and
guiding and coordinating the activities of office personnel to achieve business goals.
These activities are evaluated and adjusted to improve and maintain efficiency,
effectiveness, and productivity.

1. Planning:
 the first and foremost function of office management. It is best described
as the first step towards other functions of the office.
 a well-defined course of future action.
 Objectives of Planning:
Planning is done to:
1. Offset the changes and uncertainty
2. To gain on economical operations, and
3. To facilitate control.
In the case of office management these objectives of planning are to be
coordinated with reference to the objectives of business enterprises as set forth
by its manager.

2. Staffing:
 a function of management, more so it is an executive function of selection,
recruitment, compensation, promotion, training and retirement of
subordinate managers. Office management also has this process of
staffing because the office has to be manned and managed in similar
fashion.

3. Directing:
 defined and described as the functioning of command. “The successful
direction of sub-ordinates results in knowledgeable well-trained people
who work efficiently toward the objectives of the enterprises. Direction can
be described as the process of guiding and supervising the subordinates.
The idea of guiding and supervising is to give a specific direction to the
various activities in the office with a view to its proper functioning.”

4. Communication:
 explained as the interchanges of thoughts or information to bring about a
mutual understanding and confidence or a good human relation. Effective
communication is in line where a thing is understood in the same sense in
which it has been communicated.
 To establish a good communication, it is essential to follow these three
principles:
(a) The principles of clarity
(b) The principles of integrity
(c) The principles of strategic use of informal organization.

5. Controlling:
  a function of checking current performance against pre-determined
standards contained in the plans, with a view to ensuring adequate
progress and satisfactory performance—physical or financial. Controlling
is basis to the office management.
 Controlling should have these principles:
1. The principle of economy
2. The principle of flexibility.
3. The principle of objectivity.
4. The principle of vision.
5. The principle of need and nature of the office.

6. Co-Ordination:
 a process of balancing and keeping the team together by ensuring a
suitable allocation of working activities to the various members, and
seeing to it that these are performed with due harmony amongst the
members themselves.
 In order to have an effective co-ordination in the office, it is necessary that
co-ordination must have the following prerequisites:
(a) The goal of the sub-ordinate department must be designed to
contribute to the enterprise.
(b) The objectives of the enterprise must be known to each and every
member of the group.
(c) Individuals should understand properly how their job contributes to the
goal of the enterprise.

7. Motivation:
 One of the most complex and a difficult process of a form of management
is the process of motivation.
 Motivation is of two types:
(i) self-motivation and
(ii) external motivation.
 Motivation means including a subordinate to work with zeal and zest with
gusto and cooperate for achieving the objectives of the organization. The
motivation system should satisfy the edge needs of the group besides
being flexible, competitive, productive and comprehensive.
 If a motivational system has these characteristics it shall achieve the
following in the office:
(a) Helps for setting examples for sub-ordinates
(b) Keep the moral high
(c) Helps in disciplines
(d) Provides growth in stature and responsibilities
(e) Provides financial opportunities to the executives.