2. Financial statements
• Financial Statements represent a formal record of the financial
activities of an entity.
• Financial Statements reflect the financial effects of business
transactions and events on the entity.
• Financial statements are used by the stake holders of the company
e.g share holders , or who have some interest in profit of company.
3. Four Financial statements
• Statement of profit and loss (income and expenses)
• Statement of financial position (assets = capital + liabilities)
• Statement of changes in equity (movement in reserves )
• Statement of cash flows (movement in cash and bank balances)
4. Statement of profit and loss
This summaries the incomes earned and expenses incurred during the financial period.
XYZ Group
Income statement for the year ended 31 December XXXX
$
Sales Revenue X
Cost of goods sold
Opening inventory
+purchases
-closing
(X)
Gross profit X
Distribution costs (X)
Administrative expenses (X)
––
Profit from operations X
Investment income X
Finance costs (X)
––
Profit before tax X
Tax expense (X)
––
Net profit for the period X
––
5. Statement of Financial Position
Illustrative statement of financial position for XYZ at 31 December XXXX
$m $m
Non-current assets
Property, plant and equipment X
Investments X
Intangibles X
——
X
Current assets
Inventories X
Trade and other receivables X
Prepayments X
Cash X
——
X
——
Total assets X
——
Equity
Ordinary share capital X
Irredeemable preference share capital X
Share premium X
Reserves: ——
Retained earnings X
——
X
Non-current liabilities
Loan notes X
Current liabilities
Trade and other payables X
Overdrafts X
Tax payable X
——
X
——
Total equity and liabilities X
——
