Financial Statements
1. Balance sheet- Statement of Financial Position
Shows a company's assets, liabilities, and equity at a specific point in time.
2. Income Statement- Statement of Comprehensive Income
Reports the company's revenue, expenses, and profits over a specific period, showing whether it
made a profit or a loss.
3. Cash Flow Statement- Summarizes cash inflows and outflows from operating, investing, and
financing activities, showing how cash is generated and used.
4. Statement of Changes in Equity - Shows changes in the owners' equity during a specific period,
including contributions, dividends, and retained earnings.
Components of Statement of Financial Position
1. Assets - refer to resources owned by a company that hold economic value and can be converted into
cash or used to generate future income.
Current Assets: Short-term assets that are expected to be converted into cash or used within a
year. Examples include:
o Cash and cash equivalents - refer to a company's most liquid assets, which are either
cash or can be quickly converted into cash with minimal impact on their value. CCE is a
key component in financial reporting, as it indicates the available funds that a company
can use immediately for operations, investments, or to cover short-term obligations.
Cash and cash equivalents typically include:
Physical cash (currency and coins) on hand
Demand deposits (e.g., checking accounts) with financial institutions
Short-term investments with high liquidity and low risk, such as:
Treasury bills
Money market funds
Commercial paper
Certificates of deposit (with short maturity, usually 90 days or less)
Because these assets are easily accessible, they are essential for assessing a company's
short-term financial health and its ability to meet immediate obligations.
o Accounts receivable
o Inventory
o Prepaid expenses
Non-Current Assets: Long-term assets held for more than a year. Examples include:
o Property, plant, and equipment (PPE)
o Intangible assets (e.g., patents, trademarks)
o Long-term investments
o Goodwill
2. Liabilities - are financial obligations or debts that a company owes to external parties.
Current Liabilities: Obligations due within a year. Examples include:
o Accounts payable
o Short-term loans
o Accrued expenses
o Current portion of long-term debt
Non-Current Liabilities: Long-term obligations due after more than a year. Examples include:
o Long-term debt
o Deferred tax liabilities
o Bonds payable
o Lease obligations
3. Equity (Shareholders' or Owner’s Equity) - refers to the ownership interest in a company,
representing the residual value left for the owners or shareholders after all liabilities have been
subtracted from the assets.
Share Capital: Funds contributed by shareholders.
Retained Earnings: Profits reinvested in the business rather than distributed as dividends.
Additional Paid-In Capital: Amounts received from shareholders above the par value of shares.
Reserves: Specific amounts set aside for particular purposes, such as future asset replacement.
Components of Statement of Comprehensive Income
The Statement of Comprehensive Income includes two main sections: the Income Statement (Profit or
Loss) and Other Comprehensive Income. Here’s a breakdown of each section:
1. Income Statement (Profit or Loss)
Revenue: Total income from sales of goods or services.
Cost of Goods Sold (COGS): Direct costs of producing goods or services sold.
Formula for Cost of Goods Sold (COGS):
COGS=Beginning Inventory+Purchases during the period−Ending Inventory
Gross Profit: Revenue minus COGS.
Operating Expenses: General expenses necessary to run the business, such as:
o Selling, General, and Administrative Expenses (SG&A)
o Depreciation and Amortization
Operating Profit (Operating Income): Gross profit minus operating expenses.
Other Income and Expenses: Items not directly related to core operations, like:
o Interest income
o Interest expense
o Gains or losses from asset sales
Profit Before Tax: Operating profit plus other income, minus other expenses.
Tax Expense: Taxes on profit before tax.
Net Profit (Net Income): Profit after tax, representing earnings attributable to shareholders.
2. Other Comprehensive Income (OCI)
Unrealized Gains or Losses on Financial Instruments: Gains or losses from assets not yet sold.
Foreign Currency Translation Adjustments: Gains or losses due to changes in exchange rates.
Revaluation Surplus: Gains or losses from revaluing assets, like property or equipment.
Actuarial Gains or Losses on Defined Benefit Plans: Changes in pension liabilities based on
actuarial assumptions.
The total comprehensive income is the sum of net profit and other comprehensive income, showing the
full impact of income and other gains or losses on shareholders’ equity.
Prepared by:
MELFA B. LAJERA, MICB, LPT
