ELEMENTS OF

FINANCIAL
STATEMENTS
Financial
Statements
 Financial Statements are written reports that
show the financial activities and performance of
a business.
 The main financial statements are Income
statements, Balance sheets, statements of
changes in equity and cashflow statements.
The Balance Sheet &
The Accounting Equation
 A Simple Balance Sheet
The balance sheet is a financial statement which shows the assets of a
business in relation to its liabilities and capital at a particular date.

Therefore, the three main components of the balance sheet are

 Assets
 Liabilities
 Capital

The components of the balance sheet can be arranged to form the

accounting equation
WHAT
ARE ASSETS?
 Resources owned
and used by the
business.
Categories of Assets
Current Assets
This is mainly cash and other assets
which are expected to be converted to
cash within a short period of time. The
occurrence of daily transactions cause
the value of these to change from day
to day.
Example:
 Cash in hand

Cash in the bank
 Money owed to the business for goods
sold on credit (debtors)
 The value of goods to be sold (stock)
Non-current Assets
These are assets that are used in the
business for a long period of time.
Their value does not change with day-
to-day transactions. They are not
bought for resale to customers, and
when they are old and damaged, they
are replaced.
Examples include Motor vehicles,
furniture, buildings, equipment,
computers
WHAT ARE
LIABILITIES?
 Amounts of money
owed by the business
to other business
organizations, example
Banks and suppliers.

This Photo by Unknown Author is licensed under CC BY-SA

Categories of Liabilities

Current liabilities Long-term Liabilities

These are debts of the business that These are debts of the business that
is to be repaid in one year or less could be repaid in more than one year.
 amount owing to suppliers  bank loans
(creditors)  Mortgages
 bank overdrafts.  Debentures
 Short-term loans
 Unpaid expenses
CAPITAL

 The VALUE of private funds

and resources invested in the
business by its owners.

This Photo by Unknown Author is licensed under CC BY

DRAWINGS

 Drawings is the OPPOSITE TO CAPITAL. It occurs when the owner takes assets
out of the business for his/her personal use or for a non-business use.
Drawings reduces the value of capital.
 The Accounting Equation

Assets = Liabilities + Capital

Liabilities = Assets – Capital
Capital = Assets - Liabilities