This document provides an overview of key components of financial statements that banks prepare at the end of each financial year. It describes the typical contents and structure of a bank's balance sheet, income statement, and cash flow statement. The balance sheet shows a bank's assets, liabilities, and equity at a point in time. The income statement summarizes revenues and expenses over a period to determine profit or loss. The cash flow statement reflects cash inflows and outflows during the reporting period from operating, investing, and financing activities.
Not-For-Profit Organizations: Lessons Learned from Implementation of the New ...McKonly & Asbury, LLP
McKonly & Asbury’s July webinar entitled, “Not-For-Profit Organizations: Lessons Learned from Implementation of the New Financial Reporting Standard” took place on Thursday, July 25, 2019. The webinar was hosted by Gary Dubas, Partner and Director of McKonly & Asbury’s Nonprofit Practice, Janice Snyder, Partner and Co-Director of the Assurance Practice, and Jim Shellenberger, Principal and Leader in the Nonprofit Practice.
The document provides an overview of key concepts in financial accounting and financial statements. It discusses:
1) The accounting equation that assets must equal liabilities plus owners' equity. 2) Components of the balance sheet such as assets (current and non-current), liabilities (current and non-current), and owners' equity. 3) Types of assets like fixed assets, investments, and current assets. 4) Types of liabilities including debt, current liabilities, and provisions. 5) How the balance sheet and owners' equity change based on business transactions and performance.
This document contains balance sheet information for Hindustan Unilever Limited (HUL). HUL is a British-Dutch multinational consumer goods company headquartered in Mumbai, India with over 35 popular brands used by 2 billion people daily. The balance sheets show HUL's standalone financial position and consolidated position including its subsidiaries. Key figures include total shareholders' funds of Rs. 7,659 crores standalone and Rs. 7,885 crores consolidated. Total assets are Rs. 17,865 crores standalone and Rs. 18,629 crores consolidated.
Framework for the preparation and presentation of financial statements icaiyuvraj singh
This document outlines the objectives and scope of the Framework for the Preparation and Presentation of Financial Statements. It discusses the purpose of financial statements in providing useful information to users for economic decision making. Specifically, it aims to provide information about an entity's financial position, performance, and cash flows. It also establishes concepts such as accrual accounting, going concern assumption, consistency, understandability, relevance, reliability, and comparability that underlie the preparation of high-quality financial statements.
Working capital represents a company's short-term liquidity and is used to finance day-to-day operations. The two main sources of working capital finance are trade credit and bank borrowing. Trade credit involves suppliers extending credit to customers, and is an important source of financing especially for small businesses. Banks provide working capital financing through various facilities like overdrafts, cash credits, bill discounting, and loans. Banks follow guidelines from committees like Tandon and Chore to regulate working capital lending and ensure prudent financing.
This document provides an overview and review of key concepts from Chapter 5 of Kieso's Intermediate Accounting textbook, which discusses the balance sheet and statement of cash flows. The chapter presents the mechanics of preparing the balance sheet and cash flow statement, including classifying assets, liabilities, equity, and disclosing relevant information. It also explains the usefulness and limitations of the balance sheet and cash flow statement for assessing a company's liquidity, solvency, and financial flexibility. The document concludes with a discussion of supplemental disclosures, techniques for disclosure, and terminology used in financial statements.
Not-For-Profit Organizations: Lessons Learned from Implementation of the New ...McKonly & Asbury, LLP
McKonly & Asbury’s July webinar entitled, “Not-For-Profit Organizations: Lessons Learned from Implementation of the New Financial Reporting Standard” took place on Thursday, July 25, 2019. The webinar was hosted by Gary Dubas, Partner and Director of McKonly & Asbury’s Nonprofit Practice, Janice Snyder, Partner and Co-Director of the Assurance Practice, and Jim Shellenberger, Principal and Leader in the Nonprofit Practice.
The document provides an overview of key concepts in financial accounting and financial statements. It discusses:
1) The accounting equation that assets must equal liabilities plus owners' equity. 2) Components of the balance sheet such as assets (current and non-current), liabilities (current and non-current), and owners' equity. 3) Types of assets like fixed assets, investments, and current assets. 4) Types of liabilities including debt, current liabilities, and provisions. 5) How the balance sheet and owners' equity change based on business transactions and performance.
This document contains balance sheet information for Hindustan Unilever Limited (HUL). HUL is a British-Dutch multinational consumer goods company headquartered in Mumbai, India with over 35 popular brands used by 2 billion people daily. The balance sheets show HUL's standalone financial position and consolidated position including its subsidiaries. Key figures include total shareholders' funds of Rs. 7,659 crores standalone and Rs. 7,885 crores consolidated. Total assets are Rs. 17,865 crores standalone and Rs. 18,629 crores consolidated.
Framework for the preparation and presentation of financial statements icaiyuvraj singh
This document outlines the objectives and scope of the Framework for the Preparation and Presentation of Financial Statements. It discusses the purpose of financial statements in providing useful information to users for economic decision making. Specifically, it aims to provide information about an entity's financial position, performance, and cash flows. It also establishes concepts such as accrual accounting, going concern assumption, consistency, understandability, relevance, reliability, and comparability that underlie the preparation of high-quality financial statements.
Working capital represents a company's short-term liquidity and is used to finance day-to-day operations. The two main sources of working capital finance are trade credit and bank borrowing. Trade credit involves suppliers extending credit to customers, and is an important source of financing especially for small businesses. Banks provide working capital financing through various facilities like overdrafts, cash credits, bill discounting, and loans. Banks follow guidelines from committees like Tandon and Chore to regulate working capital lending and ensure prudent financing.
This document provides an overview and review of key concepts from Chapter 5 of Kieso's Intermediate Accounting textbook, which discusses the balance sheet and statement of cash flows. The chapter presents the mechanics of preparing the balance sheet and cash flow statement, including classifying assets, liabilities, equity, and disclosing relevant information. It also explains the usefulness and limitations of the balance sheet and cash flow statement for assessing a company's liquidity, solvency, and financial flexibility. The document concludes with a discussion of supplemental disclosures, techniques for disclosure, and terminology used in financial statements.
IAS-1: Presentation of Financial StatementsAmit Sarkar
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.
This document outlines the topics that will be covered in a financial management course for hospital executives. The course will cover fundamental financial management concepts like risks and rates of return, time value of money, and financial assets. It will also cover topics like capital budgeting, capital structure, working capital management, and financial planning. The document notes that financial management involves planning, directing, monitoring, organizing and controlling an organization's monetary resources. It aims to help organizations achieve financial objectives like profitability, risk control, and meeting stakeholder expectations.
International financial accounting standardsRaziya Hameed
International Accounting Standards were established in 1973 and were later replaced by International Financial Reporting Standards in 2001 to provide a common set of global accounting standards. IFRS are now accepted in over 120 countries and aim to increase transparency and comparability of financial information across international borders. The standards are set by the International Accounting Standards Board and cover key aspects of financial reporting such as accounting elements, qualitative characteristics, objectives, and underlying assumptions. While IFRS adoption has costs, there are significant benefits for international trade, investment and comparability between global companies.
This chapter discusses financial planning and forecasting. It covers developing long-term and short-term financial plans, including preparing cash budgets and pro forma income statements and balance sheets. The cash budget forecasts cash inflows and outflows to determine short-term cash needs. Pro forma statements are used to project the future financial position and evaluate financing requirements. Different approaches for preparing these statements are outlined, along with their strengths and weaknesses. The overall goal is for management and investors to evaluate the firm's expected financial performance and ability to generate returns.
Working capital refers to a company's short-term assets and liabilities. There are two main concepts of working capital - gross working capital, which is the total investment in current assets, and net working capital, which is the difference between current assets and current liabilities. A company's working capital requirements are determined by factors like its nature of business, production cycle, and seasonal needs. There are different approaches to financing working capital, including the hedging approach of matching debt maturities to needs, the conservative approach of financing all current assets with long-term debt, and the aggressive approach of relying more on short-term debt.
The document discusses the Statement of Financial Position (Balance Sheet for for-profit companies). It provides an example Statement and explains that the Statement of Financial Position shows what assets an organization owns, what it owes (liabilities), and the difference between assets and liabilities (net assets). It breaks down assets, liabilities, and net assets into more detail and provides questions one should ask when analyzing each section of the Statement of Financial Position.
Financial accounting icab introduction part
Financial accounting icab introduction part
Financial accounting ,icab ,introduction part
Financial accounting icab introduction part
Financial accounting ,icab ,introduction part
Financial accounting icab introduction part
Financial accounting ,icab ,introduction part
This document outlines various International Accounting Standards that have been superseded or replaced over time. It provides brief descriptions of the topics covered in each standard, such as the presentation of financial statements, accounting for inventories, consolidated financial statements, segment reporting, property plant and equipment, leases, and revenue recognition. Many of the standards have been replaced or superseded by newer IAS issued on the same subject matter.
The document provides an overview of financial statements, including balance sheets, cash flow statements, and notes. It explains that a balance sheet summarizes a company's financial position at a point in time by listing assets, liabilities, and shareholder equity. It also describes the major components of each type of financial statement and provides sample notes to the financial statements that give additional context and details. The cash flow statement tracks cash inflows and outflows from operating, investing, and financing activities over a period of time. Understanding these statements is important for assessing a company's financial strength and cash flows.
This document discusses the key components of a balance sheet including assets, liabilities, and owner's equity. Assets are defined as economic resources owned by a business and include items like cash, inventory, and property. Liabilities represent obligations the business owes, such as accounts payable or bonds. Owner's equity is the residual claim on assets by shareholders. The balance sheet equation shows that assets must equal liabilities plus owner's equity. Various types of each component are also described.
This document discusses working capital and revenue cycle management for healthcare organizations. It defines working capital and outlines strategies for managing assets and financing working capital needs. The revenue cycle is described, including methods to monitor performance and forecast cash flows. Accounts receivable management and collecting cash payments are also addressed.
The document provides an agenda and overview for a financial reporting update seminar. The seminar will cover upcoming changes to various Australian Accounting Standards, including AASB 9 on financial instruments, AASB 15 on revenue recognition, and AASB 16 on leases. It will also discuss regulatory changes from bodies like the ASX and ASIC. The seminar aims to bring accountants and finance professionals up to date on new standards and areas of focus.
The document provides information on funds flow statement (FFS) including its concept, preparation on total resource basis and cash basis, significance and interpretation. It discusses the learning objectives of FFS, introduction and concept of FFS, how it is prepared from the balance sheet and profit and loss account, and the importance of FFS in analyzing sources and uses of funds in a business.
This document provides an overview and explanation of key financial statements used in feasibility studies:
- The balance sheet summarizes a company's assets, liabilities, and shareholders' equity at a point in time and adheres to the formula that assets equal liabilities plus shareholders' equity.
- The income statement assesses financial performance over a period by reporting revenues, expenses from operations and non-operations, and net profit/loss.
- The cash flow statement provides data on cash inflows and outflows from operations, investing, and financing activities during a period.
It then discusses various metrics used to evaluate profitability and feasibility, including payback period, return on capital, net present value, profit index
Fund flow statement is a statement that compares the two balance sheets by analyzing the sources of funds (debt and equity capital) and the application of funds (assets) and its reasons for any differences.
This document provides an overview of key financial statements including the balance sheet, income statement, and cash flow statement. It discusses the components and purpose of each statement. The balance sheet outlines a company's assets, liabilities, and shareholders' equity. It adheres to the formula that assets equal liabilities plus shareholders' equity. The income statement assesses financial performance over a period of time by showing revenues and expenses. The cash flow statement provides data on cash inflows and outflows from operating, investing, and financing activities. It is used to analyze changes in cash from these different business activities.
This document provides an overview of the eight key steps in the accounting cycle for processing transactions: 1) Identifying transactions, 2) Classifying transactions, 3) Journalizing transactions, 4) Posting to ledgers, 5) Making adjusting entries, 6) Making closing entries, 7) Preparing a trial balance, and 8) Presenting final financial statements. It describes each step in the process, highlighting concepts like double-entry bookkeeping, debit and credit rules for different types of accounts, and examples of accounting entries for common bank transactions.
This document discusses the process of preparing published financial accounts for a bank. It explains that published accounts must follow legal and regulatory standards to ensure transparency for external users. They require an income statement, balance sheet, cash flow statement and other disclosures. In contrast, unpublished internal accounts have more flexibility in format and are primarily for internal bank management and regulatory oversight rather than external users and investors.
IAS-1: Presentation of Financial StatementsAmit Sarkar
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.
This document outlines the topics that will be covered in a financial management course for hospital executives. The course will cover fundamental financial management concepts like risks and rates of return, time value of money, and financial assets. It will also cover topics like capital budgeting, capital structure, working capital management, and financial planning. The document notes that financial management involves planning, directing, monitoring, organizing and controlling an organization's monetary resources. It aims to help organizations achieve financial objectives like profitability, risk control, and meeting stakeholder expectations.
International financial accounting standardsRaziya Hameed
International Accounting Standards were established in 1973 and were later replaced by International Financial Reporting Standards in 2001 to provide a common set of global accounting standards. IFRS are now accepted in over 120 countries and aim to increase transparency and comparability of financial information across international borders. The standards are set by the International Accounting Standards Board and cover key aspects of financial reporting such as accounting elements, qualitative characteristics, objectives, and underlying assumptions. While IFRS adoption has costs, there are significant benefits for international trade, investment and comparability between global companies.
This chapter discusses financial planning and forecasting. It covers developing long-term and short-term financial plans, including preparing cash budgets and pro forma income statements and balance sheets. The cash budget forecasts cash inflows and outflows to determine short-term cash needs. Pro forma statements are used to project the future financial position and evaluate financing requirements. Different approaches for preparing these statements are outlined, along with their strengths and weaknesses. The overall goal is for management and investors to evaluate the firm's expected financial performance and ability to generate returns.
Working capital refers to a company's short-term assets and liabilities. There are two main concepts of working capital - gross working capital, which is the total investment in current assets, and net working capital, which is the difference between current assets and current liabilities. A company's working capital requirements are determined by factors like its nature of business, production cycle, and seasonal needs. There are different approaches to financing working capital, including the hedging approach of matching debt maturities to needs, the conservative approach of financing all current assets with long-term debt, and the aggressive approach of relying more on short-term debt.
The document discusses the Statement of Financial Position (Balance Sheet for for-profit companies). It provides an example Statement and explains that the Statement of Financial Position shows what assets an organization owns, what it owes (liabilities), and the difference between assets and liabilities (net assets). It breaks down assets, liabilities, and net assets into more detail and provides questions one should ask when analyzing each section of the Statement of Financial Position.
Financial accounting icab introduction part
Financial accounting icab introduction part
Financial accounting ,icab ,introduction part
Financial accounting icab introduction part
Financial accounting ,icab ,introduction part
Financial accounting icab introduction part
Financial accounting ,icab ,introduction part
This document outlines various International Accounting Standards that have been superseded or replaced over time. It provides brief descriptions of the topics covered in each standard, such as the presentation of financial statements, accounting for inventories, consolidated financial statements, segment reporting, property plant and equipment, leases, and revenue recognition. Many of the standards have been replaced or superseded by newer IAS issued on the same subject matter.
The document provides an overview of financial statements, including balance sheets, cash flow statements, and notes. It explains that a balance sheet summarizes a company's financial position at a point in time by listing assets, liabilities, and shareholder equity. It also describes the major components of each type of financial statement and provides sample notes to the financial statements that give additional context and details. The cash flow statement tracks cash inflows and outflows from operating, investing, and financing activities over a period of time. Understanding these statements is important for assessing a company's financial strength and cash flows.
This document discusses the key components of a balance sheet including assets, liabilities, and owner's equity. Assets are defined as economic resources owned by a business and include items like cash, inventory, and property. Liabilities represent obligations the business owes, such as accounts payable or bonds. Owner's equity is the residual claim on assets by shareholders. The balance sheet equation shows that assets must equal liabilities plus owner's equity. Various types of each component are also described.
This document discusses working capital and revenue cycle management for healthcare organizations. It defines working capital and outlines strategies for managing assets and financing working capital needs. The revenue cycle is described, including methods to monitor performance and forecast cash flows. Accounts receivable management and collecting cash payments are also addressed.
The document provides an agenda and overview for a financial reporting update seminar. The seminar will cover upcoming changes to various Australian Accounting Standards, including AASB 9 on financial instruments, AASB 15 on revenue recognition, and AASB 16 on leases. It will also discuss regulatory changes from bodies like the ASX and ASIC. The seminar aims to bring accountants and finance professionals up to date on new standards and areas of focus.
The document provides information on funds flow statement (FFS) including its concept, preparation on total resource basis and cash basis, significance and interpretation. It discusses the learning objectives of FFS, introduction and concept of FFS, how it is prepared from the balance sheet and profit and loss account, and the importance of FFS in analyzing sources and uses of funds in a business.
This document provides an overview and explanation of key financial statements used in feasibility studies:
- The balance sheet summarizes a company's assets, liabilities, and shareholders' equity at a point in time and adheres to the formula that assets equal liabilities plus shareholders' equity.
- The income statement assesses financial performance over a period by reporting revenues, expenses from operations and non-operations, and net profit/loss.
- The cash flow statement provides data on cash inflows and outflows from operations, investing, and financing activities during a period.
It then discusses various metrics used to evaluate profitability and feasibility, including payback period, return on capital, net present value, profit index
Fund flow statement is a statement that compares the two balance sheets by analyzing the sources of funds (debt and equity capital) and the application of funds (assets) and its reasons for any differences.
This document provides an overview of key financial statements including the balance sheet, income statement, and cash flow statement. It discusses the components and purpose of each statement. The balance sheet outlines a company's assets, liabilities, and shareholders' equity. It adheres to the formula that assets equal liabilities plus shareholders' equity. The income statement assesses financial performance over a period of time by showing revenues and expenses. The cash flow statement provides data on cash inflows and outflows from operating, investing, and financing activities. It is used to analyze changes in cash from these different business activities.
This document provides an overview of the eight key steps in the accounting cycle for processing transactions: 1) Identifying transactions, 2) Classifying transactions, 3) Journalizing transactions, 4) Posting to ledgers, 5) Making adjusting entries, 6) Making closing entries, 7) Preparing a trial balance, and 8) Presenting final financial statements. It describes each step in the process, highlighting concepts like double-entry bookkeeping, debit and credit rules for different types of accounts, and examples of accounting entries for common bank transactions.
This document discusses the process of preparing published financial accounts for a bank. It explains that published accounts must follow legal and regulatory standards to ensure transparency for external users. They require an income statement, balance sheet, cash flow statement and other disclosures. In contrast, unpublished internal accounts have more flexibility in format and are primarily for internal bank management and regulatory oversight rather than external users and investors.
The document discusses major classifications of cash flows according to accounting standard AS-3 and the importance of disclosing non-cash transactions. It covers cash flows from operating, investing and financing activities, and how non-cash transactions that significantly impact a company's financial position should be disclosed, either in a separate schedule or note. Key financial statements including the balance sheet, income statement and cash flow statement are also explained, along with their objectives, components and limitations.
Financial statement analysis involves analyzing a company's balance sheets, income statements, and cash flow statements over multiple years. Key aspects of analysis include calculating financial ratios to evaluate the company's liquidity, profitability, leverage, capital structure, and efficiency. Common ratios calculated include current ratio, debt-to-equity ratio, profit margin, return on equity, inventory turnover, and debt service coverage ratio. Comparing ratios across time periods and to industry benchmarks provides insights into the company's financial health and performance.
Financial Statements and Business Model Canvas_Nov5th.pptxRashmi Gowda KM
The document provides information on financial statements and the business model canvas. It defines financial statements as documents that show a company's financial status at a specific point in time, including balance sheets, income statements, cash flow statements, and statements of retained earnings. It then explains the key elements of each financial statement. The document also defines the business model canvas as a strategic management template used to develop and document business models using nine building blocks: key partners, key activities, value propositions, customer relationships, customer segments, key resources, distribution channels, cost structure, and revenue streams. It provides an example canvas for Uber.
The document provides solutions to exercises for an accounting study guide. It includes solutions for exercises on defining accounting and its main functions, the difference between financial and management accounting, key financial statements (balance sheet, income statement, statement of cash flows), basic accounting principles, preparing balance sheets and income statements, double-entry accounting, recording transactions, and summarizing changes in financial position through journals and ledgers. Sample transactions are provided and journal entries are made to record the transactions.
Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity.
This document provides an overview of a balance sheet and its key components. It defines a balance sheet as a financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time. It then describes the main elements of a balance sheet as assets, liabilities, and equity. The document proceeds to define current assets, noncurrent assets, current liabilities, long-term liabilities, and owners' equity. It concludes with limitations of the balance sheet and an introduction of the statement of cash flows.
Balance Sheet
The Balance Sheet shows the financial condition of a business at a specific point of time categorizing financial sheet of the firm under two major heads “Equity & Liabilities” and “Assets”
The balance sheet is based on the fundamental equation:
Assets = Liabilities + Equity
The balance sheet is one of the major fundamental financial statements used to serve various purposes of financial analysis, accounting and financial modelling
Equity & Liabilities represents what the firm owes, the burden or debt
The format prescribed in the Companies Act classifies Equity and Liabilities as follows: Shareholders’ Fund, Non-current Liabilities & Current Liabilities
Equity is a degree of ownership in any asset after deducting all the debts associated with that asset
It represents the shareholders’ stake/ownership in the company
Liabilities are defined as a company's financial debts or obligations that arise during the course of business operations
Shareholders’ fund represents the contribution made by shareholders in the form of financing for the business
Non-current liabilities are liabilities which are expected to be settled in longer period of time usually after one year
These include long-term borrowings , deferred tax liabilities, long-term provisions and other long-term liabilities
Current Liabilities are liabilities which are due to be settled within a year
These include short-term borrowings , trade payables and short-term provisions
An asset is any resource owned by the business either tangible or intangible that produce value and is held by a company to for longer period of time to reap positive economic value for the business.
As per Companies act , under balance sheet asset is categorized under two main headings :- Current assets and Non- current assets.
Current asset is any asset which can reasonably be expected to get sold, consumed, or exhausted through the normal course of a business within the current fiscal year or operating cycle usually within one year
Current assets include current investments, inventories, trade receivables, cash& cash equivalents, short-term loans & advances
Non-current assets are company’s long-term investments usually in the form of investments made in property (land & building), plant and equipment, machinery, intangible assets like patents, copyright, trademark, goodwill etc.
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This document provides an introduction to financial management and analysis for farms. It discusses the importance of the balance sheet and profit and loss statement for evaluating a farm's performance, risk, and financial health over time. Key ratios for financial analysis are explained, including debt, working capital, and gross margin ratios. The goals are to understand a farm's profitability, solvency, and liquidity based on these financial statements and metrics.
The document discusses financial analysis and key financial statements. Financial analysis involves evaluating businesses and projects to assess their suitability for investment. It entails examining a company's income statement, balance sheet, and cash flow statement to analyze past and future performance. The balance sheet lists assets, liabilities, and equity. The income statement shows revenues, expenses, and profits. The cash flow statement breaks cash flows into operating, investing, and financing activities. Financial ratios are used to analyze the information in financial statements and measure profitability, asset utilization, and liquidity.
Support presentation to the SPIN-UP Training Programme on Entrepreneurial Skills for University Spin-Offs.
SPIN-UP is a cooperation project supported by the European Commission that aims to create an Entrepreneurship Training and Coaching Programme that contributes to the development of Key Entrepreneurial Skills, both technical and behavioural, essential to enable and leverage University Spin-Offs growth.
Download and have access to other training materials in www.spin-up.eu
The document discusses key financial statements including the balance sheet, income statement, statement of retained earnings, and statement of cash flows. It provides examples of the components and format of each statement. The balance sheet presents a company's assets, liabilities, and equity on a given date. The income statement summarizes revenues and expenses over a period of time to arrive at net income. The statement of retained earnings tracks the changes in a company's retained earnings balance. Finally, the statement of cash flows provides information on a company's cash inflows and outflows.
The document discusses key financial statements including the balance sheet, income statement, statement of retained earnings, and statement of cash flows. It provides examples of the components and format of each statement. The balance sheet presents a company's assets, liabilities, and equity on a given date. The income statement summarizes revenues and expenses over a period of time to arrive at net income. The statement of retained earnings tracks the changes in a company's retained earnings balance. Finally, the statement of cash flows provides information on a company's cash inflows and outflows.
This document summarizes a framework for measuring the performance of microfinance institutions through standardized financial reporting and analysis. It outlines financial statements including an income statement, balance sheet, cash flow statement, portfolio report, and non-financial data report. It provides definitions and examples of line items for each statement to allow for meaningful analysis and monitoring of microfinance institutions according to international financial reporting standards.
Measuring performance of microfinance institutions a framework for reportin...snb9899
This document provides an overview and summary of the "Measuring Performance of Microfinance Institutions: A Framework for Reporting, Analysis, and Monitoring" framework developed by the SEEP Network Financial Services Working Group. The framework aims to standardize financial terms, ratios, and adjustments for microfinance performance monitoring. It includes chapters on financial statements, analytical adjustments, financial ratios and indicators, and promoting adoption of the framework. The summary highlights key aspects of each chapter, including recommended financial reports, adjustments, and standardized ratios for analyzing and benchmarking microfinance institution performance.
The document discusses Uganda's financial services sector. It describes the four tiers of financial institutions in Uganda: (1) commercial banks that take deposits and make loans; (2) credit institutions that also take deposits and make loans; (3) microdeposit-taking institutions (MDIs) that accept small deposits and make small loans; and (4) unregulated institutions like SACCOs that make loans but do not accept deposits. It then provides examples of institutions that fall into each tier and describes their distinguishing characteristics and regulations.
The document discusses Uganda's financial services sector. It begins with a historical overview of banking in Uganda, from the initial four commercial banks at independence to periods of economic breakdown and reforms. It then describes the structure of Uganda's financial sector, including the roles of various institutions such as commercial banks, development banks, microfinance organizations, and the Bank of Uganda as regulator. The informal financial sector is also briefly outlined.
This document provides an overview of key Ugandan laws that regulate banking and financial services. It discusses the Financial Institutions Act of 2004, which guides the operation of banks and non-banks and aims to maintain confidence in the financial system. It also covers the Bank of Uganda Act of 2000, which gives the central bank authority to supervise financial institutions. Additional acts discussed include the Bills of Exchange Act regarding negotiable instruments, and the Micro Finance Deposit-Taking Institutions Act of 2003 concerning the regulation of microfinance institutions. The conclusion emphasizes that bankers must understand and conform to relevant legislation in order to properly perform their daily tasks.
This document discusses contract law and its importance in banking. It covers the following key points:
- Contract law is central to banking as banks enter into many contracts with customers for services like opening accounts and providing loans.
- The essential elements of a valid contract are an agreement between parties involving an offer, acceptance, and consideration.
- For a contract to be enforceable it must also meet additional requirements around legality, capacity, consent, and formalities.
- Breach of contract occurs when one party fails to perform according to the terms and the injured party can sue for damages. This is important in banking when mistakes are made processing items like checks.
This document provides an overview of the legal environment module for the Uganda Institute of Banking & Financial Services. It discusses the sources of law relating to financial institutions, including acts of parliament, statutes, and legal principles. It also covers specific topics like contract law, negotiable instruments, and the relationship between banks and their customers. The role of legislation in regulating the banking sector is explained, along with key concepts like the definition of law, the classification of law into public and civil components, and the "Code of Banking" which comprises established practice rules for the industry.
The document discusses the banker-customer relationship under contract law. It defines key terms like banker, customer, and bank. A banker is defined as someone who carries out the business of banking like accepting deposits and honoring checks. A customer is anyone who uses a bank's services, including those without an account. The relationship is a contractual one, with implied rights and duties. Rights of bankers include charging fees and interest, while duties include keeping information confidential and honoring valid checks. The contract can end through termination by either party, by operation of law like death, or after reasonable notice from the bank.
This document discusses the banker-customer relationship under contract law in Uganda. It begins by defining key terms like "banker", "customer", and "banking". A banker is defined as someone who carries out the business of banking, such as accepting deposits and honoring withdrawals. A customer is anyone who enters an agreement with a bank for services.
The relationship between a banker and customer is described as contractual, with implied rights and duties. General contract law principles apply. When opening an account, banks must verify a customer's identity and obtain signatures or mandates authorizing transactions. Both bankers and customers have legal rights and duties in the contract, such as bankers having the right to charge fees and customers having the duty to
This document discusses negotiable instruments and bank cheques. It defines negotiable instruments as documents used in commerce to secure payment of money. Cheques are specifically defined as written promises by the drawer for the bank to pay the payee on demand. The key parties to a cheque are the drawer, drawee (bank) and payee. Features of a cheque include the cheque number, sort code, account number and crossing lines instructing the bank to deposit funds in the payee's account rather than paying in cash. Negotiable instruments must bear the maker's signature, include an unconditional promise to pay a fixed sum, specify a payment on demand or at a definite time, and be payable to order or to bear
This document discusses pricing mechanisms and concepts from an economics perspective. It defines pricing as the process of determining the cost for goods and services based on factors like production costs, competition and demand. It then describes price mechanisms as how buyers and sellers negotiate prices based on supply and demand through mutual exchanges. Finally, it outlines three key functions of price mechanisms: 1) they act as signals to producers about supply and demand, 2) they transmit consumer preferences to producers, and 3) they provide incentives for producers and consumers to change their behavior in response to price changes.
Banks play an important role in the economy by serving as financial intermediaries. They accept deposits from savers and pool those funds to provide credit to borrowers, either directly through lending or indirectly by investing in capital markets. This transfers funds from those with surplus money to invest to those who need to borrow funds. Commercial banks also facilitate national and international trade by transferring funds, which is key to the functioning of the economy. Banks include central banks that implement monetary policy, commercial banks that accept deposits and provide credit, savings banks for lower income savers, and development banks that lend to new businesses.
This document discusses environmental conservation and its relationship to economics. It begins by defining economics and the environment. It then outlines global trends in increasing priority given to environmental protection, including frameworks like the UNFCC and Kyoto Protocol. For Uganda specifically, the document notes that environmental sustainability is a strategic objective in development plans but the country has not performed well on related MDG measures. It emphasizes that Uganda's prosperity relies on biodiversity that faces threats. Finally, it describes the interrelationship between the environment and economics, noting the environment supplies resources and economic prosperity relies on it.
The document discusses international trade and regional economic integration in Africa. It provides details on several major regional economic communities in Africa, including COMESA and the East African Community (EAC). COMESA aims to promote economic development and trade by removing barriers between member states. Its goals include establishing a free trade area and eventually a common market and monetary union. The EAC also seeks to deepen economic and political integration between its members through cooperation in areas like trade, infrastructure, and security. Both organizations aim to boost intra-regional trade and investment through gradual economic harmonization and coordination between states.
The document discusses the role of government in regulating economic activity and maintaining stable market conditions. It describes how governments establish legal frameworks, regulate industries like banking, implement fiscal and monetary policies to influence economic growth and inflation, redistribute resources, and address externalities. Specifically, it outlines the government's role in regulating general business interactions and specific industries, using policies like taxation and money supply management to guide economic stabilization, and providing services that markets do not.
The document discusses different types of business organizations including sole proprietorships, partnerships, limited liability companies, and cooperatives. It provides details on the key advantages and disadvantages of each type. Sole proprietorships are easy to establish but the owner bears all financial risks, while partnerships allow for more capital but partners have unlimited liability. Limited liability companies provide protection of personal assets but involve more legal formalities. Cooperatives make it easier to raise capital from members but with less personal control over business decisions.
This document discusses inflation, including its definition, causes, effects, and methods of control. Inflation is defined as a rise in the general level of prices for goods and services in an economy over time, which causes a loss of purchasing power. Common causes of inflation include increases in production costs, demand, money supply, and imported goods prices. Effects can be both positive, like encouraging investment, and negative, like uncertainty reducing investment. Controlling inflation involves monetary policy through central banks targeting low interest and inflation rates.
This document provides an overview of key economic concepts and the economic environment. It begins by explaining the objectives of the module which are to explain the economic environment, basic economic concepts, micro and macroeconomics, and different economic situations and their causes. It then defines several important economic terms and concepts such as scarcity, resources, supply, demand, market equilibrium, production, cost, efficiency, and opportunity cost. It also distinguishes between microeconomics and macroeconomics and explains economic indicators like economic growth, inflation, employment, and unemployment.
The document discusses lending, insolvency, receivership, and bankruptcy from the perspective of banks and lenders. It covers the typical lending cycle and key issues at each stage. Acts of bankruptcy under Ugandan law are outlined, including conveyance of property to trustees or fraudulent transfers. The implications of receivership are summarized, such as the receiver taking charge of the borrower's affairs and replacing management. Finally, the duties of a receiver and effects of bankruptcy are briefly explained, such as proof of debts by creditors and priority of certain debt types in distribution of the bankrupt's property.
The document discusses lending in the banking business and concepts related to insolvency. It begins by outlining the learning outcomes which are to articulate the role of lending, discuss the bank lending cycle, and explain insolvency, bankruptcy, and receivership. It then provides definitions of key terms like insolvency, receivership, and bankruptcy. Finally, it lists 11 signs that can indicate a business or individual is insolvent, such as continuing losses, current liabilities exceeding assets, unpaid taxes, and suppliers requiring cash-on-delivery or special payments. The document aims to explain these lending and insolvency concepts to banking and financial services students.
This document discusses lending in the banking business. It covers general principles of good lending, the typical lending cycle, and remedies for defaulting borrowers. Delinquency or default refers to a borrower failing to pay installments on time. Causes of delinquency include inability to pay, business failure, adverse economic conditions, willful default, death, inappropriate loan terms, and bankruptcy. Managing delinquency involves preventing late payments through proper underwriting and tailoring loans to borrowers' needs. It also involves solving existing delinquencies through measures ranging from contact and rescheduling to seizing and selling collateral.
This document discusses different types of lending in the banking business. It defines corporate lending as lending to companies and institutions that are separate legal entities, while retail lending refers to lending to individuals and small businesses. The key differences between corporate and retail lending are loan amounts, who signs contracts and bears liability, and complexity. Requirements for corporate lending include the company being incorporated and having authority to borrow, while requirements for retail lending include the borrower being an adult of sound mind and having debt repayment capacity. Mortgage lending is also discussed as a specialized type of lending secured by property.
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Basic accounting unit3
1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Accounting Framework
Posting and Processing Transactions
Year- End Adjustments and Provisions
Preparing Final Accounts
Introduction to Financial Reporting Standards
Published Accounts
MODULE COVERAGE
1
Financial Ratios and Projections
Elements of Taxation
2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
At the end of each financial year, a bank prepares and presents its financial
statements that show its financial performance over the financial period
and the financial position at the close of the year.
This is intended to show how prudently the financial resources have been
managed.
At a minimum, financial statements of a banking institution include:
(i) The Balance Sheet - showing the organisation’s financial position as at the
end of the period
(ii) The Profit and Loss Account/Income Statement -showing performance for
a stated period and the resulting profit or loss realized during the period
(iii)The Cash flow Statement showing the movement of cash in and out of
the organization for a stated period.
(iv)Loan Portfolio / Asset Quality Report (by whatever name a bank chooses
to call it) showing the detailed updates on the status of the loan portfolio.
Below is a detailed description of the four components of the financial
statements.
2
3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The Balance Sheet
The Balance sheet is a snap shot of a bank’s asset and liability position at a point in
time. It reflects:
What the bank owns and what is owed to it (assets), what it owes other persons or
entities (liabilities)
The difference between the two above is the equity or the net worth. It is the capital
or the claim on the bank by its owners.
Categorization of balance sheet items
Current Assets – These are assets that are owned by the bank and which are expected
to last for not more than a year in their current form. They are all assets that are
expected to expire, be used up or change form within one year.
Non-current Assets / fixed assets – These are assets that are owned and held by the
bank, expected to last for more than one year in their current form.
Current Liabilities – These are debts / obligations of the bank which must be settled in
the next 12 months from the balance sheet date.
Non- Current Liabilities/Long term liabilities- These are debts or obligations that must
be settled after more than one year from the balance sheet date.
Equity- This represents the owners/ shareholders funds in the bank. Equity is the total
claim on the business by its owners. Equity = Total Assets – Total Liabilities.
3
4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Typical current assets of a bank:
• Cash
• Deposits in financial institutions
• Deposits with BoU
• Loan portfolio
• Capital market investments securities
• Government securities
• Other short term assets
Typical non-current assets of a bank:
• Long term investments
• Fixed assets
• Accumulated depreciation
• Net fixed assets
• Total assets
Typical current liabilities of a bank:
• Customers’ deposits
• Amounts due to other banks
• Due to BoU
• Due to other institutions
• Other current liabilities
Typical non-current liabilities of a bank:
• Time deposits > 1 year
• Long term bonds issued
• Long – term debt
• Other long – term liabilities
4
5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Typical equity items in a bank’s
balance sheet:
• Paid up share capital (funds
injected in the bank by
shareholders as capital)
• Retained profit/ revenue reserves
(undistributed profit
accumulated)
• Special reserves (special capital
accounts created for statutory or
other purposes)
• Other capital accounts
Below is a simple example of a
typical balance sheet structure.
5
6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
ASSETS UGX
Current Assets:
• Cash on hand and in banks (a )
• Deposits in Financial Institutions (b)
• Short Term Investments (c)
• Gross Loan Portfolio (d)
• Less: Loan Loss Reserve (e)
• Other Short Term Assets (f)
Total Current Assets –g (sum a to f)
6
7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
ASSETS UGX
Non Current Assets
• Long term investments (h)
• Fixed assets (i)
• Less: Accumulated Depreciation (j)
• Net fixed assets (k): (i-j)
Total Non Current Assets (l): (h+k)
TOTAL ASSETS – m (g+l)
7
8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
EQUITY AND LIABILITIES UGX
Current Liabilities
• Customers’ deposits
• Amounts due to other banks
• Due to BoU
• Due to other institutions
• Other current liabilities
Total Current Liabilities (n)
Non Current Liabilities
• Time deposits > 1 year
• Long term bonds issued
• Long – term debt
• Other long – term liabilities
Total Non Current Liabilities (o)
Total Liabilities (p) XX
8
9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
EQUITY UGX
Paid up share capital
Retained profit/ revenue reserves
Special reserves
Other capital accounts
Total Equity (q)
TOTAL LIABILITIES & EQUITY (p+q) XX
Note: In a balance sheet, assets should always be equal to
the sum of liabilities and equity.
9
10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The Income Statement
• The Income Statement is a summary
of incomes earned and expenses
incurred during the financial period,
with the bottom line being the profit
or loss realized.
• The Income Statement, which is also
known as Profit and Loss Account,
summarizes all the financial effects of
transactions during a specific period
of time, usually a month, quarter or
year.
• It records the income that was
received and expenses incurred
during the period, showing the profit
earned or loss incurred (difference
between income & expenses).
Categorization of income statement
items
• Income
• Operating expenses
• Net income from operations before
tax
• Net income from operations after tax
• Financing expenses
• Grant income (if applicable)
Typical components of a bank’s income
• Interest income from loans
• Fee income from loans
• Income from investments
• Other operating income
• Total operating income
10
11. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Interest income from loans - This is interest received on loans advanced by the bank
to its customers. Interest income can be recorded on accrual basis (interest due
but not yet received) or cash basis (when the cash is received).
Fee income from loans - These are fees and commissions, including penalty fees (if
applicable) received on loans advanced by the bank.
Income from investments -This is revenue from interest, fees, dividends or other
payments generated by financial assets other than the loan portfolio. Examples
are interest earned on bearing deposits with other institution, certificates of
deposits, Treasury Bills and Government Bonds, and dividends earned from the
bank’s equity investments in other organizations. This includes not only interest
received in cash but also interest accrued but not yet received.
Other operating income - Revenue generated from sources other than the above.
This may include rent received, commission on services to other organizations,
fee income unrelated to loans (e.g. money transfer/remittance fees, charges for
school fees collection, commission/fees charged for electricity & water bills
collection.
Total operating income - This is the summation of all operating income during the
period or year-to-date.
11
12. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Financing Expenses - These arise where an institution acquires debt in form of a loan,
issues a bond or other debt instrument on which it pays interest and/or fees.
Financing expenses are costs the bank pays to access and use such debt. Examples
of financing cost are interest on loans payable, loans (payable) processing fees
and commitment fees and interest paid on bond issued by the bank.
Below is a list of the line items under financing expenses of an income statement:
i. Interest and fees paid on loans (market and concessional)
ii. Interest and fees paid on bonds
iii. Interest paid on fixed deposit, savings and current accounts (where applicable)
iv. Interest paid on borrowings from BoU.
v. Total financing expenses (sum of all the above)
Gross financial margin- This is the difference between what is earned by the bank by
providing financial services and its financing costs. It therefore, reflects how well
the bank is performing in terms of generating a sufficient ‘spread’, which is the
difference between total operating revenue and total financing expenses.
Gross Financial Margin = Total Operating Revenue – Total Financing Expenses
12
13. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Provision for Loan Losses - A provision is an expense account created for potential loss
in asset value or crystallization of claims against the bank.
• The loan loss provision is an example of such, created in anticipation of potential
default by borrowers of some loans. This is a non-cash expense that creates or
increases the loan loss reserve on the balance sheet.
• This expense may be comprised of general and specific provisions. The general
provision is calculated as a percentage of the value of the Gross Loan portfolio
that is at risk of default based on aging analysis.
• Specific provisions are made for specific loans. It is common to use the term
provision for loan losses and loan loss reserve interchangeably. To avoid
confusion between this expense and the loan loss reserve, analysts prefer to use
the term reserve for the balance sheet account (accumulated provisions over the
years as the loan portfolio quality changes), and the term provision for the
expense account (additional or incremental loan loss reserves created during the
accounting period).
• It is also helpful to include the word expense when referring to this latter account.
The provision for loan loss expense should always be separated from other
operating costs.
13
14. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Net Financial Margin (NFM) - Represents the difference between the incomes
generated from the portfolio and other investments, and the costs directly
associated with those investments during the period (Financing expenses and
provision for loan losses). This represents the amount of income available to
cover operating expenses for the period or year-to-date.
Operating expenses - Operating expenses include the following items; (costs incurred
by the bank in its operations, other than financing or capital costs).
i. Personnel expenses
ii. Rent and utilities
iii. Travel and transport
iv. Stationery and office supplies
v. Other operating expenses
vi. Depreciation (a non-cash expense that is determined by estimating the useful
life of each asset and expensing a portion of the useful life for the period).
Depreciation represents a decrease in the value of property/assets and accounts for
the portion of useful lifetime that is expensed during each accounting period.
Net Income from operations before tax-
Net Income from Operations =Total Operating Income - Total Expenses.
14
15. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Income Taxes - These include all taxes paid on net income or other measure of profits
as defined by tax authorities. Income tax for a bank, like is the case with any
other incorporated entity is levied on net profit. It is known as corporation tax.
In Uganda, this is currently 30% of pre-tax profit.
Net income from Operations after Tax = Net profit from operations - tax
Grant income
A grant is a donation made by an organization or person to the bank.
Major categories are;
i. Grant income for loans to specific causes/ sectors
ii. Grant income for fixed assets
iii. Grant income for operating expenses
iv. Un restricted grant income
Grant income is usually:
Recorded on the Income statement for memorandum purposes only.
Not included in the retained surplus / deficit current year
15
16. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Grant income for loans –
These are funds donated to the Banking Institution to capitalize the loan
fund, that is, which are restricted to use as lending funds and cannot be
used for operating expenses.
This amount may be disclosed on the Income Statement for memorandum
purposes only and is not included in the retained surplus/deficit. It
normally goes to the balance sheet as separate item, commonly called
“Revolving Funds” under liabilities or equity.
Grant income for fixed assets –
These are funds donated to the Banking Institution to purchase fixed assets,
which are restricted to fixed asset purchases and cannot be used for
operating expenses.
This amount is usually disclosed on the Income Statement for memorandum
purposes only and is not included in the retained surplus/deficit of the
current year.
It should prudently, go to the equity portion of the balance sheet as a non –
distributable reserve.
16
17. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Grant income for operating expense. –
These are funds donated to the bank to cover operating expenses and
supplement earned income. This amount is recorded on the Income
Statement for memorandum purposes only and is not included in the
retained surplus/deficit. It goes to the balance sheet as a reserve.
Unrestricted grant income –
Unrestricted funds donated to the bank to cover any need including funds for
loan capital, purchase of fixed assets, or operating shortfalls.
This amount is recorded on the Income Statement for memorandum
purposes only and is not included in the retained surplus/ deficit
Total grants received - This represents all the grant income to support the
delivery of financial services (and non –financial services if applicable).
Net Income after Grants (for the period) - Summation of net income after tax
and total grants received after the period.
17
18. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Typical Income Statement Structure
Income UGX
• Interest and fee income
• Investment income
• Other operating income
Total operating income
Operating Expenses
• Personnel expenses
• Rent & Utilities
• Travel & Transport
• Depreciation
• Stationary & Office Supplies
• Other operating expenses
Total Operating Expenses
Net Income from Operations xxx
Financing expenses UGX
• Interest and charges paid on loan
• Interests paid on customer deposits
Total financing expenses
Gross Financial Margin
Provision for Loan Losses
Net Financial Margin
Total income xxx
Less: Income Tax
Net income after tax
Grants received
Income after grants for period xx
18
19. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The Cash Flow Statement
A cash flow statement is a logical summary statement of how cash flowed in and out
of the business (bank) during the reporting period. Information about the cash
flow is useful in providing users of financial statements with a basis to assess the
ability of the enterprise to generate cash and other liquid assets and its utilization
of the cash.
The economic decisions that are taken by users require an evaluation of the ability of
an enterprise to generate cash and cash equivalents and the timing and certainty
of their generation.
Typical Components of a cash flow statement;
Cash flow from operating activities
These are the principal revenue producing activities of the enterprise. The amount of
the cash flows arising from operating activities is an indicator of the extent to
which the operations of the enterprise have generated sufficient cash flows to
repay loans, maintain the operating capability of the enterprise, pay dividends
and make new investments without recourse to external sources of financing.
Cash flows from operating activities are primarily derived from the principal revenue-
producing activities of the enterprise. Therefore, they generally result from the
transactions and other events that enter into the determination of net profit or
loss.
19
20. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Investing Activities
These are cash flows that represent the extent to which expenditures have been
made for resources intended to generate future income and cash flows.
Examples include cash payments to acquire equity or debt instruments in other
companies/ enterprises. They involve acquisition and disposal of long term assets
and other investments.
Financing Activities
These are activities that result in changes in the size and composition of equity capital
and borrowings of the enterprise. They are useful in predicting claims on future
cash flows arising from financing activities.
Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits (current accounts with other
banks and with BoU).
Cash equivalents are short term, highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an insignificant amount of
changes in value.
Cash equivalents are held for the purpose of meeting short term cash commitments
rather than for investment or other purposes.
20
21. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Benefits of Cash flow Information
Information about the cash flow of an enterprise is useful in providing users of
financial statements with a basis to assess the ability of the enterprise to maintain
healthy liquidity. The economic decisions that are taken by users require an
evaluation of the ability of the enterprise to generate cash.
A cash flow statement, when used in conjunction with the rest of the financial
statements, provides information for this. It indicates the reporting entity’s
liquidity, solvency and ability to manage liquid assets in order to adapt to
changing circumstances and opportunities.
Historical cash flow information is often used as an indicator of the amount, timing
and certainty of future cash flows. It is also useful in checking the accuracy of past
assessments of future cash flows and in examining the relationship between
profitability and net cash flow and the impact of changing prices.
The difference between the income statement and the cash flow statement are:
1. The income statement includes all costs incurred or reasonable income earned,
whether or not the actual cash has changed hands while the cash flow
statement only includes actual cash inflows and outflows.
21
22. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
2. The income statement only includes revenue and expenditure items which
affect the profits, while a cash flow statement includes all cash-involving
transaction- including capital expenses like fixed asset acquisition or disposal.
3. The income statement includes estimated non-cash expenses like fixed asset
depreciation and provisions, which the cash flow statement does not include.
4. The income statement is the aggregated (average) incomes or costs over a
period of time (usually a year) while the cash flow statement is period by period
(daily, weekly or monthly) incomes or costs as they occur.
Preparing the cash flow statement
There are two methods for preparing the cash flow statements.
a. The direct method; by which major classes of gross cash receipts and gross cash
payments are analyzed to determine where each cash movement should be
reported in order to arrive at the net cash effect for that particular line item for
the period.
b. The indirect method, which works back from net profit or loss, adding or
deducting non cash transactions, deferrals or accruals and items of income or
expense associated with investing and financing cash flows to arrive at net cash
flow. Both methods yield the same result.
22
23. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Cash Inflows:
• Interest and fee income
• Investment income
• Cash from capital
investment inflows
• New loans payable
• Other operating income
• Donations/Grants
Total cash inflows xxx
Cash outflows:
• Financing expenses
• Investments
• Operating expenses
• Non operating expenses
Total cash out flows xxx
Net Cash flow xxx
Opening Cash Balance xxx
Closing Cash Balance xxx
23
Preparing the cash flow- Direct method
24. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Cash Flow from Operations:
• Cash receipts/repayments from
clients
• Cash paid to employees
• Cash paid for operating expenses
• Taxes paid
• Interest paid
Net Cash Flow from Operations
Cash Flow from Investing Activities
• Purchases of non current assets
• Proceeds from sale of non current
assets
• Purchases of stock or other securities
• Proceeds from the sale or
redemption of investments
Net Cash Flow from Investing Activities
• Cash Flow from Financing Activities
• Proceeds from loans, notes, and other
debt instruments
• Installment payments on loans or
other debt repayment
• Cash received from the issuance of
stock or equity in the business
• Dividend payments, purchases of
treasury stock or returns of capital
Net Cash Flow from Financing
Activities
Net increase in cash & cash equivalents
for the period
xxx
Cash & cash equivalents (beginning of
period) xxx
Net cash flow (end of the period) xxx
24
Preparing the cash flow- Indirect Method
25. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Loan portfolio reports
Although it is not a mandatory requirement by the accounting profession, the
portfolio report is vitally important for any financial institution. A portfolio report
provides information about the lending activity of a bank. It provides information
about the volume and quality of the portfolio. It usually also includes other key
portfolio performance indicators (e.g. outreach, concentration and spread).
A portfolio report should present the health of the portfolio, scale of late payment on
loans of the end of the reporting period, and any measurement of late payment
should be thoroughly explained. Information in a portfolio report usually includes:
a. Number and value of loans outstanding at the end of the period
b. Total value and number of loans disbursed during the period
c. Outstanding balance of loans to different sectors
d. Number and value of outstanding loan balances in arrears, value of payments in
arrears
e. Value of loans written off during period
f. Portfolio aging analysis
g. Pending loans (not yet booked in the system)
h. Re-scheduled loans
i. Information on loan terms, loan officers, savings accounts and balances, etc.
25
Editor's Notes
At the end of this unit, the students should be able to:
Define and explain the key financial statements constituting the Final Accounts.
Explain the meaning and significance of the line items under each financial statement.
The method of recording interest received should be described in the notes to the financial statements, and should remain consistent across accounting periods. If a bank records interest on an accrual basis (which is the usual practice), this should generally stop if the loan becomes non- performing.
Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.