PURPOSE OF FINANCIAL STATEMENTS

-provide information about the financial position, performance and cash flows of an
entity that is useful to a wide range of users
-shows result of stewardship
FREQUENCY OF REPORTING
-shall be presented at least annually
-if end of reporting period changes and FS presented for a period of longer or shorter
than 1 year, entity shall disclose reason for using longer or shorter period and facts that
amounts presented in financial statements are not entirely comparable.
STATEMENTS OF FINANCIAL POSITION
Assets, liabilities and Equity
To be analyze;
LIQUIDITY- ability to pay currents maturing obligation
- Can easily converted to cash and to measure statement of financial
position
Working Capital= current asset- current liability
Current Ratio= current asset/current liability
SOLVENCY- ability tp pay long term basis obligation
-can still sustain operation in all assets and liabilities
INSOLVENT- can no longer pay liabilities and investors
DISSOLVE- to pay liabilities depends on priority
FINANCIAL STRUCTURE
-all asset came from liability or equity or can be funded through liability and equity
- base on the structure of an asset, can be categorized as earning and non-earning
CAPACITY ADAPTATION- how flexible the management in managing their asset
- Without cash they can’t operate and too much cash could affect
earning ( it should be invested to have earnings).
ASSET- resouces controlled by the enterprise
- Result from past transactions
- Provide future economic benefits
- Cost can be measured reliably
CLASSIFICATION OF ASSET
current- unrestricted cash and cash equivalents
- Assets held primarily for the purpose of being traded
- Expected to be realized within 12 months after the reporting period
- Expected to be realized or intend to sell or consume within the entity’s
normal operating cycle
non-current- all other asset not classified as current such as property plant and
equipment, long term investments, intangible assets
SINKING FUND- money invested to be withdrawn in specific time
RECEIVABLES
Trade-from main operation, receivable generated from selling products
Non-trade- receivale from someone owes the company such as insurance
OPERATING CYCLE- from start to completion RELEASE TO COLLECTION
LIABILITIES- present obligation of an enterprise
- Arises from past transactions or events
- The settlement requires an out flow of resources
CURRENT LIABILITIES- expected to be settled within the entity’s normal operating
cycle
- Hold primarily for the purpose of trading
- Due to be settled within 12 months
- Entity does not have an unconditional right defer settlement of liability
for at least 12 months. Usually happened by refinancing