ASSETS = LIABILITIES + EQUITIES

Share Capital Retained Earnings (profits earned from operations and not
(arise from yet distributed as dividends)
issue of shares)
Beginning + Current Period – Dividend
Retained (year or month)
Earnings Profit
Revenue -
Expenses

Assets = Liabilities + Equity

Cash Accounts Supplies Prepaid Equipment Accounts Unearned Share Retained
Receivable Insurance Payable Consulting Capital Earnings
Revenue

Profit and Loss Statement

Company name
Income Statement
For Month Ended [day, month, year]

$ $
Consulting Revenue […]
Rental Revenue […]
Total Revenue […]
Less
Salary expense (…)
Rent expense (…)
Utilities expense (…)
Insurance expense (…)
Supplies expense (…)
Depreciation expense (…)
Total expense (…)

Net profit (…)

Statement of Changes in Equity

Company name
Statement of Changes in Equity
For Month Ended [day, month, year]

Share Capital Retained Earnings Total Equity

Beginning balance (date)
Issuance of new shares
Net income for the period (…)
 Less: dividend
Ending balance (date) (…) (…)

Balance sheet:

Company name
Statement of Financial Position
As at [date, month, year]

$m $m
Fixed assets
Accumulated depreciation
Net fixed assets

Current assets
Cash (…)
Prepaid Insurance
Accounts Receivable
Debtors
Stocks
Total current assets

Current liabilities
Overdraft
Accounts payable
Salary payable
Unearned Revenue
Creditors
Short term loans
Total current liabilities
Net current assets (working capital)

Total assets less current liabilities

Long term liabilities

Mortgage
Debentures
Bank loans

Net assets

Financed by:
Share capital (…)
Retained Earnings (…)
Total Equity
Total Liabilities and Equity
 Company name
Statement of Cash Flows

Cash flows from operating activities

Cash received from customers
Cash paid to suppliers and employees
Net cash provided by operating activities

Cash flows from investing activities

Acquisition of fixed assets
Net cash used for investing activities

Cash flows from financing activities:

Proceeds from issuance of ordinary shares
Payment of dividends
Net cash provided by financing activities

Net increase in cash

Beginning cash balance
Ending cash balance (…)
For Month Ended [day, month, year]

Adjusting Entries
There are 3 categories of adjustments: prepaids (deferrals), accruals and depreciation.
Prepaid / Deferrals

Type of Timing of Status as at Effect of entry Journalized

adjusting entry cash cash
transaction
Prepaid Paid in Expense not Balance sheet: When company pays before receiving
Expense (e.g. advance incurred yet Prepaid insurance goods
prepaid as an asset Dr Prepaid Expense
insurance decreases Cr Cash
rental)
Profit and Loss: ADJUSTING ENTRY - When company
Insurance receives the good & services for what
expense they paid:
increases Dr Expense (increase)
Cr Prepaid Expense / Supplies (asset
decrease)
Unearned Received Revenue not Balance sheet: When cash is received before company
Revenue (e.g. in earned yet Unearned delivers goods or services to customer:
service fee advance revenue as a Dr Cash
received in liability decreases Cr Unearned Revenue (liability)
advance)
Profit and Loss: ADJUSTING ENTRY – When company
Revenue delivers the goods / earns the revenue
increases Dr Unearned Revenue
Cr Revenue

Accruals
Status as Timing of Effect of entry Journalized
at year- cash
end
Accrued Expense Pay cash Balance sheet: ADJUSTING ENTRY: When company
Expense incurred later Salary payable as receives goods or service from supplier
(e.g. accrued a liability before cash is paid:
salaries, increases Dr Expense
utilities) Cr [...] Payable
Profit and Loss:
Salary expense When cash is paid
increases Dr […] Payable
Cr Cash

Accrued Revenue Receive cash ADJUSTING ENTRY: When company

Revenue earned later delivers goods or service from supplier
(e.g. service before cash is paid:
revenue / Dr Receivable
interest Cr Revenue
receivable)
When the company receives cash after:
Dr Cash
Cr Receivable
Depreciation
Balance sheet: Dr Depreciation Expense
Equipment as an asset decreases. Cr Accumulated Depreciation

Profit and Loss statement:

Depreciation expenses increases

Make Closing Entries

Revenue Expense Dividend
Dr Revenue Dr Retained Earnings Dr Retained Earnings
Cr Retained Earnings Cr Expense Cr Dividend

Financial Ratios
Liquidity Ratios Current Ratio Current Assets / Current Ability to pay current
Liabilities liabilities with current
assets
Acid-Test Ratio Liquid Assets / Current Ability to pay current
Liabilities liabilities with quick
assets (includes cash,
short-term investments
and net accounts
receivables. Excludes
inventories and prepaid
expenses). Liquid assets
 is a subset of current
assets.
Solvency Ratio Debt Ratio Total liabilities / Total Proportion of assets
assets financed by creditors (as
opposed to being
financed through
equity)

Bank Reconciliation
[Company Name]
Bank Reconciliation, [Date]
Bank ending balance Books ending balance (cash a/c)
+ deposit in transit + bank collection items (Dr Bank, Cr AR)
e.g. dd 30 Aug 200 + interest earned on bank a/c (Dr Bank, Cr Interest)
dd 31 Aug 20 - GIRO payments (Dr Expense, Cr Bank)
- Outstanding cheques - bank service charges (Dr Bank charge, Cr Bank)
e.g. #[cheque number]. Xx - NSF / bounced cheques (Dr AR, Cr Bank)
+/- corrections of book errors
Adjusted bank balance Adjusted book balance

After reconciliation, make JE to record reconciling items:

Dr A/R
Cr Cash

^ because the company originally recognized the cash and Dr Cash Cr A/R

Petty Cash Controls

When custodian draws money from bank to start a Dr Petty Cash Fund
fund Cr Cash at Bank
When fund runs low, the custodian replenishes the Dr Taxi fare
fund Dr Pantry expenses
Cr Cash at Bank
If prevailing cash in box + total ticket value is less If money missing: Dr Cash short and over (xx)(a
than original fund balance loss)
If too much money in box: Cr Cash short and over
(xx)(a gain)

Note Receivables
For sales Dr Notes Receivable
Cr Sales Revenue
For extension of AR Payment terms Dr Notes Receivable
Cr Accounts Receivable
For lending Dr Notes Receivable
Cr Cash

At maturity date, the company will collect the principal + interest due.

Accounting for Impairment

When sale is made at the start Dr A/R
Cr Revenue
 When it is estimated that 20% of the debt
will not be collectible
When the amount is confirmed uncollectible
Dr A/R Impairment Loss (expense account) 20
Cr Allowance for A/R Impairment (contra-asset account)
20
Dr Allowance for A/R impairment (contra-asset account)
Dr Cash (whatever that can be collected)
Cr A/R

What if the allowance is under-estimated?

Under-estimation There would be a net Dr balance under allowance for A/R Impairment
account.
Over-estimation There would be a net Cr balance under allowance for A/R Impairment
account.

Assessment of A/R Impairment

Step 1: Segregate A/R known to be individually impaired from the rest of the A/R
Account Amount owed Status Action
Co A $10k Known that some amount may be Step 2: individual
uncollectible assessment
Other customers $90k No obvious evidence of un- Step 3: collective
collectability assessment

Step 2: If an A/R is impaired @ balance sheet date, recognize the Allowance for A/R impairment. Suppose it
is estimated that there is an 80% chance that the entire $10k owed by Co A will be uncollectible:
Dr A/R Impairment Loss 8k
Cr Allowance for A/R impairment 8k

Aging of Receivables
Step 3: Based on FRS 109, the provision matrix will be used to collectively assess the rest of the accounts.
All invoices are categorized according to whether and for how long they are overdue @ balance sheet
date. Uncollectible amounts are estimated for each age category.

For each account age category (Not yet due):

Total amount in category X Estimated % of un-collectability for category (higher % estimated for longer
outstanding accounts – deemed more likely to become uncollectible) = Estimated uncollectible amount
for category (sum of computed amounts in all categories). The allowance for A/R Impairment account is to
be adjusted to this target balance. E.g. if the allowance for A/R Impairment account has a 1k balance, the
following must be done to bring the target balance of 3.6k:
Dr A/R Impairment Loss 2.6k
Cr Allowance for A/R impairment 2.6k

Beginning Inventory + Net Purchases = COGS + Ending Inventory

Cost of Goods available for sale Will be in B/S to show
inventory left

Efficiency ratios
Accounts Receivable Sales / Average net A/R Average net A/R = Measure how fast A/R is
Turnover beginning + ending net being collected
receivables / 2
Days’ Sales in 365 / A/ R turnover Measures how many
Receivables days it takes to collect
A/R
 Inventory turnover
Inventory resident
period
A/P turnover
A/P outstanding period
Cash conversion cycle A/R collection period + Inventory resident period –
Total assets turnover
COGS (EB – BB) / Average inventory No. of times average
inventory was sold
during period
365 / inventory turnover No of days it takes to
sell inventory
COGS / Average A/P Measures how fast A/P
is being paid
365 / A/P turnover Measures how fast A/P
is being paid
Measures no. of days
A/P outstanding period cash is tied up in
operations
Sales / Average total assets Ability to use assets to
generate sales

Inventory

Costs to be included in Inventory

Cost of inventory = Sum of purchase price (net of purchase discounts, returns and
allowances) and all other costs incurred to bring the inventory to
its present location and condition

Inventory return Dr Accounts Payable

Cr Inventory
Buyers of inventories may be granted credit terms such as “2/10, n/30”. It means the buyer must pay
within 30 days of invoice date but if a payment is made within just 10 days, he enjoys 2% discount off
the invoice price.
If there is discount Dr Accounts Payable
Cr Cash
Cr Inventory
If there is no discount Dr Accounts Payable
Cr Cash
Accounting for missing inventory Dr COGS / Inventory Loss Expense
 Cr Inventory

INVENTORY COSTING METHODS

1. Specific Identification
2. First-In-First-Out
3. Weighted Average

Specific Identification – each unit sold is specifically identified

Date Purchases COGS Ending Inventory balance
1 Jan 2 units @ $35 $70
2 Mar 2 units @ $40 $80 2 units @ $35 $150
2 units @ $40
3 May 1 unit @ $35 $35 1 unit @ $35 $35
2 units @ $40 $80
4 Jun 2 units @ $40 $80 1 unit@ $35 $115
2 units @ $40
5 Oct 1 unit @ $50 $50 1 unit @ $35 $165
2 units @ $40
1 unit @ $50
6 Dec 1 unit @ $40 $40 1 unit @ $35 $125
1 unit @ $40
1 unit @ $50
COGS for year $155

First-In-First-Out – assumption that the earliest units on hand at that point in time are sold first
Date Purchases COGS Ending Inventory balance
1 Jan 2 units @ $35 $70
2 Mar 2 units @ $40 $80 2 units @ $35 $150
2 units @ $40
3 May 1 unit @ $35 $35 1 unit @ $35 $35
2 units @ $35 $80
4 Jun 2 units @ $40 $80 1 unit@ $35 $115
2 units @ $40
5 Oct 1 unit @ $50 $50 1 unit @ $35 $165
2 units @ $40
1 unit @ $50
6 Dec 1 unit @ $40 $40 1 unit @ $35 $125
1 unit @ $40
1 unit @ $50
COGS for year $155

Weighted Average – after each purchase, weighted average cost of all units on hand is computed. Next sale
transaction is costed at that particular weighted average cost computed
Date Purchases COGS Ending Inventory balance
1 Jan 2 units @ $35 $70
2 Mar 2 units @ $40 $80 2 units @ $35 $150 /4 =
2 units @ $40 $37.50
(Weighted
 Average
Cost)
3 May 3 units @ $112.50 1 unit @ $37.50 $35
$37.50

Lower of Cost and Net Realizable Value

Inventory should be valued at the lowest of HC and NRV. NRV is the estimated selling price minus
estimated selling cost.
Companies must recognize loss immediately. E.g. expected loss in 2018 is $20, must be recognized in 2017.
2017 2018
Dr COGS 20 Dr Cash 80
Cr Inventory 20 Cr Revenue 80

Dr COGS
Cr Inventory
Loss recognized in advance in 2017 No loss suffered in 2018
To reduce value of inventory and recognize
unrealized loss
This number would be finalized for balance sheet (Inventory) and Income Statement / Profit and Loss
statement (COGS)

Ratios for Management of Inventory

Gross Profit Ratio
Inventory turnover
Inventory resident period
Gross Profit / Sales
COGS / Average Inventory
365 / Inventory turnover
Measures profitability of core
business
No. of times average inventory
was sold during the period
No. of days it takes to sell
inventory

PPE
After the PPE is placed in service, there may be subsequent expenditure on the PPE. The key issue is to
decide whether the subsequent expenditure is capital expenditure (to recognize in carrying amount of the
PPE e.g. major engine overhaul) or revenue expenditure (to charge to income statement immediately e.g.
lubrication). R&D cost is a revenue expenditure and development cost is a capital expenditure only if
technological and commercial viability of product is established.
IF CAPITAL EXPENDITURE Dr Asset
IF REVENUE EXPENDITURE Dr Expense
Materiality principle: many companies expense off items below a certain $ value, regardless of their
nature.

Depreciation
Cost = Depreciable Amount + Residual Value
Straight-Line (equal Depreciation Rate = Cost – Residual Value / Useful Life in Years
depreciation expense / year) Dr Depreciation Expense
Cr Accumulated Depreciation
Units of production (recognize Depreciation Rate = Cost – Residual Value / Useful Life in Years
depreciation expense in Depreciation Expense in Year X = Depreciation Rate x No. of Units
connection with actual asset Produced in the Year
use) Dr Depreciation Expense
Cr Accumulated Depreciation
Double-Declining Balance DDB rate = 2 x Straight-line rate
(assumes that the asset Depreciation expense in Year X
 generates higher revenue in its = Net book value @ beginning of Year X x DDB Rate
early years)
However, in the last year, the DDB rate should not be used as the
accumulated depreciation might exceed the depreciable amount. Thus,
the last year’s expense should be just whatever that is left of the
depreciable amount.

What if the depreciation rate is estimated wrongly?

E.g. Useful life is 4 years instead of 2 years. Use → Remaining depreciable cost / remaining useful life

Impairment
An asset is considered impaired when the asset’s NBV > its recoverable cost, where recoverable cost = the
higher of the net amount that can be obtained from selling the asset now and the value derived from
continuing to use the asset over its remaining useful life. The PPE’s carrying amount should be written
down to its recoverable amount. → E.g. if NBV is 0.5 million higher than recoverable cost:
Dr Impairment Loss (P&L) 0.5 million
Cr Accumulated Impairment Loss (B/S) 0.5 million

Revaluation of PPE
Companies have to choose between cost and revaluation model:
Cost model Cost less accumulated depreciation and impairment
Revaluation model Fair value (aka current selling price) at the last revaluation date less accumulated
depreciation and impairment

Derecognition of PPE
Discarding Assets Dr Depreciation expense This brings the NBV up-to-date.
Cr Accumulated depreciation

Dr Accumulated depreciation This closes the PPE and Accumulated

Dr Loss on disposal (NBV @ POINT OF Depreciation. Loss on disposal is
DISPOSAL) calculated by comparing disposal price
Cr Furniture with NBV @ point of disposal.
Selling Assets Dr Depreciation expense This brings the NBV up-to-date.
Cr Accumulated depreciation

Dr Cash Loss of disposal is calculated by

Dr Accumulated Depreciation comparing disposal price with NBV. If
Cr Gain / Dr Loss on disposal the
Cr Furniture

Intangible items
Whether an intangible asset has to be amortized (reduced in value) and the timing of impairment testing.
Patent Dr Patent
Cr Cash
(To acquire a patent)

Dr Amortization expense (same as depreciation expense) – Patent

Cr Accumulated amortization – Patent
(To amortize cost of a patent)
Goodwill Dr Impairment loss on goodwill
Cr Accumulated impairment loss
(Goodwill written down)
Type of Liabilities
Known liabilities Dr Asset
Cr Liability (e.g. A/P)
Provisions (for Dr Expense
future expenses) Cr Provision

Known Liabilities
Refundable deposits Dr Cash
Cr Deposit
^ The deposit is a liability as the cash must be refunded to the customer.
GST Payable Dr Cash
Cr Sales Revenue
Cr GST Payable
CPF Payable Dr Salary expense
Cr Salary payable
Cr Employee CPF payable
Cr Employer CPF payable
Notes payable Dr Cash
Cr Notes Payable
^ Issuance of note payable

Dr Interest expense
Cr Interest payable
^ Interest accrued

When loan is due:

Dr Interest Payable
Dr Interest expense
Cr Cash
^ Payment of interest

Dr Note Payable
Cr Cash
^ Repayment of note payable

Classifying a portion of the Long-Term Debt as a current Liability

Current debt = due within 12 months
^ Original loan of $1m and $0.3m of it has been classified as a current liability.

Provisions – estimations of future expenses

Product warranty Dr Warranty expense
Cr Provision for warranty
^ Estimated warranty liability

Dr Provision for warranty

Cr Inventory / Cash
^ Actual warranty claims

The provision would usually be higher or lower than the actual claims. In this case, there is an
overprovision of 5k:
Provision for Warranty
Claims 30k 1/1/19 35k
31/12/19 5k
Expense 45k
31/12/19 adj bal. 30k

Contingent Asset
If future gain / receipt is… Action
Probable If reliable estimate, make provision
e.g. Dr Estimated lawsuit loss (Expense)
Cr Estimate liability for lawsuit loss (Provision)
Not probable / remote Disclose nature in notes and estimate impact (if available) –
no recording
Remote No action

Issuing of shares
Issue of Ordinary Shares for Cash
Issue of Shares for Other Assets
Dr Cash (Cost per share multiplied by no. of shares)
Cr Share Capital - Ordinary
Dr Land
Cr Share Capital – Ordinary
 ^ Fair value of the asset received should be used but if it
cannot be estimated reliably, then fair value of shares issued
is used

Order of listing of account in B/S

1. Preference shares (entitled to take dividends before everyone)
2. Ordinary shares
3. Capital reserves
4. Retained earnings

Cash Dividends
Declaration Date (dividend is declared) Dr Retained Earnings
Cr Dividend Payable
Record Date (owner of shares entitled to NO JE
dividend)
Payment Date (actual payment of Dr Dividend Payable
dividend) Cr Cash

When there are both preference and ordinary shares:

Journal Entry Dr Cr
Retained Earnings X
Dividend payable - preference Y
(no. of shares x cost per share x
no. of years)
Dividend payable, ordinary Z
(X-Y=Z)
Bonus Shares – e.g. 100m existing shares increases up to 125m shares instead
Declaration Date Dr Retained Earnings
Cr Bonus issue distributable
Payment Date Dr Bonus issue distributable
Cr Share Capital

Share split – division of existing shares issued. E.g. 2-for-1 split – no. of shares double, cost per share
decreases by half. NO JOURNAL ENTRY REQUIRED.

Share buybacks REMEMBER THAT TREASURY SHARES AND TREASURY SHARE TRANSACTION RESERVE IS A
CONTRA-EQUITY ACCOUNT
Bought it back to cancel Dr Share Capital or Retained Earnings
Cr Cash
Bought it back to hold as Dr Treasury Shares (Contra-equity account- have to go into B/S –
treasury shares Retained Earnings less Treasury Shares)
Cr Cash

Reissue of Treasury Shares

Below Cost Dr Cash
Cr Treasury Shares
Dr Treasury share transaction reserve (contra-equity account) – lost
made from selling shares
Above Cost Dr Cash
Cr Treasury Shares
 Cr Treasury share transaction reserve – profit made from selling
shares

Statement of Comprehensive Income

Revenue
Expenses
Net profit

Asset revaluation gain

Fair value gain / loss
Other comprehensive income
Total comprehensive income

Asset Revaluation Gains

When PPE is being revaluated, the fair value might be higher or lower
Upward (Higher) Dr Land
Cr Revaluation Surplus – Land
^ This is not recognized as net income

Dr Asset revaluation gain (OCI) (equity account)

Cr Asset revaluation reserve (equity account)
Downward (Lower) Dr Asset revaluation loss (P&L account)
Cr Land
*Prudence accounting principle – only recognize losses but not profit until it is realized.

Financial assets after initial recognition are categorized into

- Amortised cost
- Fair value through other comprehensive income (FVOCI)
- Fair value through profit and loss (FVPL)

At every year-end, the investment amounts are adjusted to reflect their current fair value (FV) which
results in a gain or loss.
- Held-for-Trading (HFT) investments (investments purchased with the intent of selling them within a
short period of time) → gain or loss recognized in income statement (FVPL investment)
- Non-HFT investments → gain or loss recognized in other comprehensive income (FVOCI
investment)
When market value exceeds carrying amount, it is a gain, vice versa.
FVPL Dr Investment (FVPL)
Cr Fair Value Gain (P/L)
^ Unrealized FV gain reported part of P&L

Dr Fair Value Gain (P/L)

Cr Retained Earnings
^ Closed at period-end as gain account is temporary
FVOCI Dr Investment (FVPL)
Cr Fair Value Gain (OCI)
^ Unrealized FV gain reported part of OCI

Dr Fair Value Gain (OCI)

Cr Fair Value Reserve
^ OCI closed to fair value adjustment within equity
Prior period errors (corrected retrospectively)
E.g. an expense item wrongfully capitalized under land account
If error discovered before Dr Expense
year-end Cr Land
If error discovered the next Dr Retained Earnings
year Cr Land

es in Equity – all values come from ending balances in SCE

Share Asset Fair Value Retained Treasury Total
Capital Revaluation Reserve Earnings Shares
Reserve
Beginning
balance
Change in
accounting
policy
Collection of
prior period
error
Net profit All net profit
for the
period is
closed to the
RE account
in the SCE
Other Individual OCI amounts
comprehensive closed to the respective
income capital reserve accounts in
SCE
New share Transactions
issue with owners
disclosed in
SCE
Treasury Transactions
shares with owners
acquired disclosed in
SCE
Dividend Transactions
with owners
disclosed in
SCE
Ending balance

Measures of share value

Book Value per ordinary share = Shareholders’ equity applicable to ordinary shares / No. of outstanding
ordinary shares
Basic EPS = (Net profit – Preference dividend) / Weighted average no. of outstanding shares
Earnings per share = Estimated future annual EPS / investment capitalization rate a
 Evaluation of investment
Price-Earnings ratio = Market price per ordinary share / Earnings per share
This is the market value of each $ of earnings – reflects investors’ valuation of the coy’s prospects.

Dividend yield = Annual cash dividend per share / Market price per share
This is the % of market value of company’s shares that is returned to shareholders as dividend each year.

Cash Flow Statements (CASH EQUIVALENT NOT REPORTED ON CFS – e.g. treasury bills, short-term
money market funds, short-term notes issued by large corporations)
Operating cash flow (Cash, A/R, Inventories, A/P, Sales to customer (A/R)
Salary Payable) Goods for resale
Services received
Salaries of employees
Income taxes
Investing cash flow (PPE, long-term investments, Sales of PPE
short-term note receivable, short-term Sale of investments
investments) Collection of notes receivables
Purchase of PPE
Purchase of investments
Long-term loans to others
Financing cash flow Borrowing (short-term & long-term debt)
Issuing shares
Selling treasury shares
Repaying debts
Paying dividend
Purchasing treasury shares

OPERATING CASH FLOWS

Collection from customers
Interest Received
Dividend Received
Payment for Inventory
Payment for Rent
Payment for Utilities
Payment to Employees
Interest and income tax
paid
INVESTING CASH FLOWS
Change in PPE
Acquisition (outflow) and
disposal (inflow)
Change in long-term
receivables
Interest and income tax
paid
FINANCING CASH FLOWS
Change in paid-up capital
Change in long-term debt
Beginning A/R (B/S) + Sales (P&L) – Collections = Ending A/R (B/S)
BB + Interest Revenue (P&L) – Interest Received = EB
BB + Dividend Revenue (P&L) – Dividend Received = EB
FIND HOW MUCH PURCHASES WAS MADE: Beginning Inventory +
Purchases – COGS (P&L) = Ending Inventory
HOW MUCH HAVE BEEN PAID: Beginning A/P + Purchases – Payment to
suppliers = Ending A/P
BB + Prepayment – Rent expense = EB
BB + Utilities expense – Payment = EB
BB + Salary expense – Payment = EB
BB + Expense – Payment = EB
PPE: BB + Acquisition cost – Disposal cost = EB
Accumulated depreciation: BB + Depreciation – Accumulated depreciation
of asset disposed = EB
BB + new loans made – loans collected= EB
BB + Expense – Payment = EB
BB + New shares issued – share buyback for cancellation = EB
BB + new debt taken – repayment of debt = EB
 Change in retained RE: BB + Net profit – Dividend declared = EB
earnings Dividend Payable: BB + Dividend declared – Dividend paid = EB
Non-cash transactions (e.g. Acquisition of land by issuing ordinary shares, Purchase of equipment by
issuing a note, Repayment of debt with assets other than cash) under “Non-Cash Investing & Financing
Activities”

[Company name]
Statement of Cash Flows (Direct Method)
For the year ended [….]

Interest Revenue
Account Receivable
Payments to suppliers
Payment to employees
Payments for rent
Payments for other
operating expenses
Payments for tax

Net cash from operations

Acquisition from PPE

Disposal of PPE
New loans made out
Interest Received
Investments bought

Net cash from investing

Borrowings
Issues of shares
Purchase of treasury shares
Dividends paid

Net cash from financing

Net increase in cash

Cash at beginning of period
Cash at end of period

Non-cash investing and

financing activities

Overview of Financial Analysis

Horizontal % change = ($ change / $ in Base Year) x 100%
Vertical Income statement =
[Account ($) / Revenue ($)] x 100%

Balance sheet = [Account ($) / Total Assets ($)] x 100%

Efficiency ratios
Accounts Receivable Sales / Average net A/R Average net A/R = Measure how fast A/R is
Turnover beginning + ending net being collected
receivables / 2
Days’ Sales in 365 / A/ R turnover Measures how many
Receivables days it takes to collect
A/R
Inventory turnover COGS (EB – BB) / Average inventory No. of times average
inventory was sold
during period
Inventory resident 365 / inventory turnover No of days it takes to
period sell inventory
A/P turnover COGS / Average A/P Measures how fast A/P
is being paid
A/P outstanding period 365 / A/P turnover Measures how fast A/P
is being paid
Cash conversion cycle A/R collection period + Inventory resident period – Measures no. of days
A/P outstanding period cash is tied up in
operations
Total assets turnover Sales / Average total assets Ability to use assets to
generate sales

Profitability ratios
Gross profit margin Gross profit / sales Profitability of core
business
Net profit margin Net profit / sales Profitability of overall
operations
Return on assets Net profit / average total assets
Return on equity Net profit – preference dividend / average ordinary Profit earned from
shareholders’ equity ordinary
shareholders’ equity
Price-Earnings Ratio Market price per ordinary share / earnings per share
Dividend yield Annual cash dividend per share / Market price per share

DuPont Analysis
This measures return on equity and analyses the drivers of return of earnings.
Net profit margin x Asset turnover x Financial leverage
= (Net profit / sales) X (Sales / average total assets) x (Average total assets / Average ordinary
shareholders’ equity)