PREPARATION OF

FINANCIAL
STATEMENTS
BUSINESS FINANCE
 LEARNING OBJECTIVES
At the end of this lesson, students should be able to:
• Describe financial statements;
• Identify the users of financial statements;
• Discuss basic guidelines in the preparation of financial statements; and
• Prepare financial statements.
Financial
Statements
● considered as the final output of the whole
accounting process.
● Financial position, financial performance,
and cash flows
 Financial
Statements
● Statement of Financial Position

● Statement of Comprehensive Income

● Statement of Changes in Equity

● Statement of Cash Flows

● Notes to the financial statements

 Financial Statements
• In the Philippines, the preparation of financial statements is based on the
guidelines and directives issued by the Financial Reporting Standard Council
(FRSC).
• The guidelines issued by the FRSC is called Philippine Financial Reporting
Standards (PFRSs)
USERS OF FINANCIAL STATEMENTS
EXTERN INTERNA
AL
• SEC L
• BSP • Employess
• BIR • Management
• Creditors, suppliers,
customers, prospect
investors
 USERS OF FINANCIAL STATEMENTS
USERS INFORMATION NEEDS
The government and its
• Check financial statements to determine the allocation of resources
agencies
and activities of entities.
• Helps in regulating business activities, formulate taxation policies,
and compute national income
Present and prospective
• Concerned with the risks and returns inherent in their investments
investors
• Determine if they should buy, hold, or sell their investments
Supplies and other trade
• Determine whether amounts owed to them can be paid when due
creditors
• Trade creditors are interested in a business over a shorter period
than lenders
 USERS OF FINANCIAL STATEMENTS
USERS INFORMATION NEEDS
Creditors, lenders, banks,
• Enable them to determine whether their loans and
and other financial
institutions
Management
• To carryout its planning, decision-making, and control
responsibilities.
Employees
• Assess the stability and profitability of their employers
Customers
• Check the continuance of an entity, especially when they have a
long term involvement with
General Public
• Assist the public about the trends and recent developments
 3.3 GUIDELINES IN THE
PREPARATION OF FINANCIAL
STATEMENT
• The preparation of Financial statements, including the presentation of items and
information contained therein, whether in the Philippine context or in the global
business environment follows the general requirements of the Framework and
Standards.
• The Framework sets out the general concept that underlie the preparation and
presentation of financial statements in the absence of specific standards.
 3.3 GUIDELINES IN THE
PREPARATION OF FINANCIAL
STATEMENT
• The Standards, particularly the Philippine Financial Reporting Standards (PFRS)
Philippine Accounting Standards (PAS), outlines specific provisions and
requirements in preparing and presenting financial statements.
The basic requirements in the preparation and
presentation of Financial Statements
mentioned in the Framework and the
Standards
1. Fair presentation
2. Going concern assumption
3. Accrual basis of accounting
4. Consistency of presentation
5. Materiality and aggregation
6. Offsetting principle
7. Comparability of Information
8. Disclosure of accounting policies
 FAIR PRESENTATION
• Financial statements are fairly presented when they include all necessary
information that will influence the decision of economic users. The ff. are the
salient features of fair presentation requirements.
1. Fair presentation requires the faithful representation of the effects of transactions
as well as other events and conditions in accordance with the definition and
recognition criteria for assets, liabilities, income and expenses.
2. An application of the standards, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair presentation.
 FAIR PRESENTATION
3. A business whose financial statement comply with the standards must make
explicit and underserved statement of such compliance in the notes of financial
statements.
4. Financial Statements shall not be described as complying with the standards unless
they comply with all the requirements of the said standards.
 GOING CONCERN ASSUMPTION
Going concern is an accounting term that means that the company has the resources
needed to continue operating indefinitely until it provides evidence that it is unable to do
so. The Financial statement shall be prepared on a going concern basis, unless
management either intends to liquidate the business or cease trading, or has no realistic
alternative but to do so.
 The Following guidelines should be observed
in the preparation and presentation of
financial statements
1. The management should I make an assessment hope the
business ability the one thing you as a going concern.
Material uncertainties related to the events or conditions that may
cast significant doubt upon the ability of the business to continue as a
growing concern shall be disclosed.
2. When financial statements are not prepared on a going concern
basis, the basis on which the financial statements are prepared and
the reason why the business is not regarded as a going concern shall
be disclosed.
 The Following guidelines should be observed
in the preparation and presentation of
financial statements
3. When financial statements are not prepared on a going concern basis, the basis on
which the financial statements are prepared and the reason why the business is not
regarded as a going concern shall be disclosed.
4. The management must take into account all available information about the future in
assessing whether the going concern assumption is appropriate.
5. When the business has a history of profitable operation and there is ready access to
financial resources in times of need, it can be concluded that the going concern basis of
accounting is appropriate without a detailed analysis.
6. Before it can satisfy itself that the going concern is appropriate,  other games, the
management should consider the following wide range of factors relating to:
a.  Current and expected profitability
b.  Debt repayment schedule
c.  Potential sources of replacement financing
 ACCRUAL BASIS OF ACCOUNTING
The business must prepare its financial statements using the accrual basis of accounting
provide the type of information.
Financial statements prepared on the accrual basis provide the type of information about
past transaction and other events that are most useful to users making economic
decisions.
 Target
35 85 30 55
K K K K

60% 40%
Mars is actually a Venus is hot but
very cold place has a nice name
 Market size

45% 75%
MARS MERCURY
Mars is cold. Its Mercury is the
atmosphere is full of smallest planet in the
iron oxide dust Solar System
 Market share

45% 60% 45% 95%

VENUS MARS MERCURY SATURN
Venus has a Mars is a cold Mercury is the Saturn is the
beautiful name place, not hot smallest planet ringed planet
 Competition analysis

Saturn Mercury
Saturn is the Mercury is the
ringed planet smallest planet

Mars Venus
Mars is a very Venus has a
cold place beautiful name
 03
Sales and marketing plan
You could enter a subtitle here
if you need it
 Our services

MERCURY MARS URANUS

Mercury is the Mars is a very cold Uranus is the coldest
smallest planet place, not hot planet

SATURN NEPTUNE JUPITER

Saturn is the ringed Neptune is the Jupiter is the biggest
one and a gas giant farthest planet planet
 Break-even analysis

SALES
PROFI
Mars isTa
cold place,
not hot

LOSS
Venus is hot
but has a
nice name UNITS
 A picture always
reinforces the
concept
Images reveal large amounts of
data, so remember: use an image
instead of long texts
 Our plans

PLAN A PLAN B
Mars is a cold place. Mercury is the
Its atmosphere is full smallest planet in the
of iron oxide dust Solar System
 Sales and distribution

Channel 1 Channel 2 Channel 3 Channel 4

Saturn is the Mars is a very Uranus is the Jupiter is the
ringed planet cold place coldest planet biggest planet
Advertising
and
promotion
If you want to replace the image
on the screen with your own
work, right-click on it, choose
“Replace image” and add yours
 04
Management plan
You could enter a subtitle here
if you need it
 Our team

ALFIE FRANK ADA

EVANS
Mars is a cold BROWN
Saturn is the WRIGHT
Venus has a
place, not hot ringed planet beautiful name
 Organizational chart
● It’s a cold place
MARS ● It’s full of iron oxide dust

● It’s terribly hot

VENUS ● It’s second from the Sun

● It’s the ringed one

SATURN ● It’s a gas giant
 Our partners
01 02

VENUS MARS
It’s hot It’s cold

03 04

MERCU JUPITE
RY
It’s small
R
It’s big
 05
Operating plan
You could enter a subtitle here
if you need it
 Our process
Day 1 Day 2 Day 3 Day 4
Saturn is the Neptune is the Jupiter is the Mars is a cold
ringed planet farthest planet biggest planet place, not hot
A picture is
worth a
thousand words
AWESO
ME
WORDS
Because key words are great for
catching your audience’s attention
 06
Financial plan
You could enter a subtitle here
if you need it
 Predicted growth

Surface
Mass Diameter
gravity
(earths) (earths)
(earths)
Mercury 0,06 0,38 0,38

Mars 0,11 0,53 0,38

Saturn 1,16 9,4 1,16

 Balance sheet
1
3K 7K
M ASSETS
What the company
owns at the
LIABILITIE
What theScompany
owes at the
EQUITY
The difference
between assets and
moment moment liabilities
4,333,000,000
Big numbers catch your audience’s attention
«This is a quote. Words full of wisdom
that someone important said and can
make the reader get inspired»
—SOMEONE
FAMOUS