Financial Statements

By: Dr. Angeles A. De Guzman

Dean, College of Business Education
Definition
 Means by which the information accumulated
and processed in financial accounting is
periodically communicated to the users.
 End product or main output of the financial

accounting process
 Structured financial representation of the

financial position and financial performance

of an entity
Components of Financial Statements
 Statement of Financial Position
 Income Statement
 Statement of Comprehensive Income
 Statement of Changes in Equity
 Statement of Cash Flows
 Notes, comprising a summary of significant

accounting policies and other explanatory

notes
Statement of Financial Position
 Use to evaluate factors as liquidity, solvency
and the need of the entity for additional
financing
 Elements

◦ Assets
◦ Liabilities
◦ Equity
Assets
 Controlled by the entity
 Result of a past transaction or event
 Provides future economic benefits
 Cost can be measured reliably
 Classified into current assets and noncurrent

assets
Presentation of Current and Non
Current Assets
 Current Assets
◦ Cash and cash equivalents
◦ Financial assets at fair value
◦ Trade and other receivables
◦ Inventories
◦ Prepaid expenses
 Noncurrent Assets
◦ Property, plant and equipment
◦ Long-term investments
◦ Intangible assets
◦ Other noncurrent assets
Liabilities
 Present obligation of a particular entity
 Arises from past transaction or event
 Requires an outflow of resources embodying

economic benefits
 Classified as current and noncurrent liabilities
Presentation of Current and
Noncurrent Liabilities
 Current Liabilities
◦ Trade and other payables
◦ Current provisions
◦ Short-term borrowing
◦ Current portion of long-term debt
◦ Current tax liability
 Noncurrent liabilities
◦ Noncurrent portion of long-term debt
◦ Finance lease liability
◦ Deferred tax liability
◦ Long-term obligations to company officers
◦ Long-term deferred revenues
Equity
 Residual interest in the assets of the entity
after deducting all of its liabilities
 Net assets or total assets minus liabilities
 Terms used depending on the form of the

business organization
◦ Owner’s equity in a proprietorship
◦ Partners’ equity in a partnership
◦ Stockholders’ equity or shareholders’ equity in a
corporation
Shareholders’ Equity
 Residual interest of owners in the net assets of a
corporation
Philippine Term
Capital Stock
Subscribed capital stock
Preferred stock
Common Stock
Additional Paid in Capital
Retained Earnings (deficit)
Retained Earnings appropriated
Revaluation Surplus
Treasury stock
IAS Term
Share Capital
Subscribed share capital
Preference share capital
Ordinary Share
Share Premium
Accumulated profits (losses)
Appropriation reserve
Revaluation reserve
Treasury share
Notes to Financial Statements
 Provide narrative description or disaggregation
of items presented in the financial statements
 Information about items that do not qualify for
recognition
 Contain information in addition to that
presented in the financial statements
 Provide the necessary disclosures required by
PFRS
Forms of Statement of Financial
Position
 Report Form downward sequence of assets,
liabilities and equity
 Account Form – assets shown on the left side

and liabilities and equity on the right side of

the statement of financial position
Comprehensive Income (OCI)
 Profit or loss –total income less expenses excluding
the components of other comprehensive income
 Other comprehensive income
◦ Unrealized gain or loss on investment in equity
instruments measured at fair value
◦ Gain or loss from translation of the financial statements of
a foreign operation
◦ Changes in revaluation surplus
◦ Unrealized gain or loss from derivative contracts
designated as cash flow hedge
◦ Actuarial gain or loss on defined benefit plan fully
recognized through other comprehensive income
Presentation of other comprehensive
income
 OCI that will be reclassified subsequently to
profit or loss when specific conditions are
met
 OCI that will not be reclassified subsequently

to profit or loss
Presentation of comprehensive
income
 Two statements
◦ An income statement showing the components of
profit or loss
◦ A statement of comprehensive income beginning
with profit or loss plus or minus the components of
OCI
 Single statement of comprehensive income
Sources of Income
 Sales of Merchandise to Customers
 Rendering of Services
 Use of Entity resources
 Disposal of resources other than products
Components of Expense
 Cost of sales or cost of goods sold
 Distribution costs or selling expenses
 Administrative expenses
 Other expenses
 Income tax expense
Forms of Income Statement
 Functional Presentation or the cost of sales
method
 Natural presentation or nature of expense
 PAS 1 does not prescribe any format
1
Statement of Retained Earnings – shows changes affecting
●

directly the retained earnings of an entity and relates the

income statement to the statement of financial position

2
Statement of Changes in Equity – is a basic statement
●

that shows the movements in the elements or

components of the shareholders’ equity

3
Statement of Cash Flows - - is a basic component of the
●

financial statements which summarizes the operating,

investing and financing activities of an entity