• FINANCIAL STATEMENTS – it is the information and process in financial accounting by which it is

communicated with the users

- Financial statements are the output or the main product of all the financial accounting
process
- Financial statements are structured financial representation of the financial position and
financial performance of an entity
• GENERAL PURPOSE OF FINANCIAL STATEMENTS
- Entity shall prepare and present general-purpose financial statements in accordance with
IFRS or International Financial Reporting Standard
- It is intended to meet the users needs who are not in position to require an entity to
prepare reports tailored to their information needs
- In short, financial statements are directed to all COMMON USERS not to SPECIFIC USERS
• COMPONENTS
- Statement of financial position
- Income statement
- Statement of comprehensive income
- Statement of changes in owners equity
- Statement of cash flows
- Notes comprising a summary of significant accounting policies and other explanatory notes
• OBJECTIVE
- To provide information about the financial position, financial performance and cash flows of
an entity or business that is useful to a wide range of users in making economic decisions
- It also shows results of the management’s stewardship of the resources entrusted to it
- To meet this objective, financial provide information about the following:
a. Assets
b. Liabilities
c. Equity
d. Income and expenses, (gains and losses)
e. Contributions of owner of capital
f. Cash flows
• FREQUENCY OF REPORTING
- It shall be presented at least annually or every year
• When the entity’s end of reporting period changes and financial statements are presented for a
period longer or shorter than one year, the business must disclose:
a. Period covered by the financial statements
b. Reason for using a longer or shorter period
c. The fact that amounts presented in financial position statements are not entirely
comparable
• STATEMENT OF FINANCIAL POSITION
- It is a formal statement showing the three elements or account namely: assets, liabilities
and owner’s equity or capital
- Investors, creditors and other statement users analyzes this statement to evaluate factors
such as: liquidity, solvency and the need of the business for additional financing
• ASSET – economic resource controlled by an entity as result of past events
• Economic resource – a right that has potential to produce economic benefits
• CLASSIFICATIONS OF ASSETS: Current assets and non-current assets
- entity supplies goods or services within a clearly identifiable operating cycle, the
classification of current and non current assets is useful information distinguishing net
assets that are continuously operating as working capital from the net assets used in long-
term operations
• Operating cycle of an entity is the time between the acquisitions of assets for processing and
their realization in cash or cash equivalents
- When the entity’s normal operating cycle is not stated, the duration is assumed to be 12
months
• CURRENT ASSETS – cash or cash equivalent unless the asset is restricted to settle a liability for
more than twelve months after the reporting period
- The entity holds the assets primarily for the purpose of trading
- Expects to realize the assets within 12 months or 1 year after the reporting period
- Expects to realize the asset or intends to sell or consume it within the entity’s normal
operating cycle
• PRESENTATIOIN OR CURRENT ASSETS
- They are usually listed in order of liquidity
a. Cash and cash equivalents
b. Trading securities/financial assets at fair value
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
• NON-CURRENT ASSETS
- Residual definition
- All other assets not classified as current as noncurrent