Financial statements

 VILNIAUS KOLEGIJA EKONOMIKOS FAKULTETAS Užsienio kalbų katedra Dieninių studijų skyriaus BA08B grupės studentė Enrika JUOZAPAVIČIŪTĖ FINANCIAL STATEMENTS Anglų kalbos savarankiškas darbas Darbo vadovė lekt. Vida BURBIENĖ Vertinimas Vilnius 2009 CONTENT INTRODUCTION 3 BASIC FINANCIAL STATEMENTS 4 CONCLUSION 7 LITERATURE 8 VOCABULARY 9 INTRODUCTION Each company, regardless of its size prepares formal documents relating to its activity, which are known as financial statements. Financial statements are formal records, which provide the information about company’s financial activities. All the relevant financial information of a business enterprise is called financial statement when the information is presented in a structured manner. This means that financial statements should be understandable, relevant, reliable and comparable. This is important not only that reported assets, liabilities, and equity are directly related to an organization’s financial position and that reported income and expenses are directly related to an organization’s financial performance. There are lots of users, who use financial statements for different purposes. Owners and managers make important business decisions based on financial statements. Employees need these reports in making collective bargaining agreements with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings. Investors use financial statements to access the viability of investing in a business. Financial institutions use them to decide whether to grant a credit to a company. Tax authorities need financial statements ascertain the propriety and accuracy of taxes paid by a company. BASIC FINANCIAL STATEMENTS There are four basic financial statements: 1. Balance Sheet – statement of financial position at a given point in time; 2. Income Statement – revenues minus expenses for a given time period ending at a specified date; 3. Statement of Retained Earnings – also known as Statement of Owner’s Equity or Equity Statement; 4. Statement of Cash Flows – summarizes sources and uses of cash; indicates whether enough cash is available to carry on routine operations. The Balance Sheet provides information about the company’s assets, liabilities and ownership equity. The Balance Sheet is often described as a "snapshot of a company’s financial condition". Of the four basic financial statements, the Balance Sheet is the only statement, which applies to a single point in time. Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing". Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. The Balance Sheet is based on the following accounting model: The company’s assets have to equal the sum of its liabilities and equity. Assets are things, which company use to make products or to provide services. Assets consist of current assets and fixed assets. Current assets include cash, accounts receivable, stocks and prepaid expenses for future services that would be used within a year. Fixed assets include property, plant, equipment and intangible assets. Fixed assets are used by the business for many years. Liabilities are amounts of money that a company owes to creditors. Liabilities can be classed as short-term liabilities and long-term liabilities. Short-term liabilities include accounts payable, notes payable, interest payable, wages payable and taxes payable. Long-term liabilities include mortgages payable and bonds payable. Equity is the money that would be left if a company sold all of its assets and paid all of its liabilities. This leftover money belongs to the shareholders or to the owners of the company. Companies raise equity capital by issuing equity securities. This is most commonly in the form of ordinary shares. The Income Statement is a report that shows how much revenue the company earned during the specified time period. It also shows the costs and expenses related with earning that revenue. The simplest equation to describe income is: The company gets net income when all the expenses, including depreciation and amortization of various assets and taxes, are charged against revenue received from the sale of products and services. The purpose of the Income Statement is to show managers and investors whether the company made or lost money during the specified time period. This helps managers and investors to determine the past financial performance of the enterprise, predict future performance, and asses capability of generating future cash flows through report of the income and expenses. The Statement of Retained Earnings shows the changes in retained earnings from the beginning to end of a time period. Retained earnings are the amount of net income left in the company after dividends are paid. The Statement of Retained Earnings uses information from the Income Statement and provides information to the Balance Sheet. The Retained Earnings account on the Balance Sheet is said to represent an "accumulation of earnings" since net profits and losses are added or subtracted from the account from period to period. Retained earnings are not paid out as dividends. Instead, they are retained and reinvest in the corporation. The general equation can be expressed as following: The Statement of Cash Flows records the actual movements in cash in an accounting period. The Statement of Cash Flows shows cash coming into a company (cash inflow) from sales, income from investments, asset sales and going out (cash outflow) when company pays to suppliers. It also shows the raising of capital and the payment of returns of capital and tax. The information used to construct the Cash flow Statement comes from the beginning and ending Balance Sheets for the period and from the Income Statement for the period. The Cash flow Statement represents an analysis of all of the transactions of the business, reporting where the firm it obtained its cash and what it did with. It breaks the sources and uses of cash into three categories: 1. Operating activities; 2. Investing activities; 3. Financing activities. The first part of cash flow statement analyzes the company’s cash flow from net income or losses. This section reconciles the net income to the actual cash the company received from or used in its operating activities. Operating activities include the production, sales, and delivery of the company’s products. The second part of a cash flow statement shows the cash flow from all investing activities, which include purchases or sales of long-term assets, such as property and equipment, as well as investment securities. If the company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities, because it used cash. If the company decided to sell off some investments from an investment portfolio, the proceeds from the sales would show up as a cash inflow from investing activities, because it provided cash. The third part of a cash flow statement shows the cash flow from all financing activities. Typical sources of cash flow include cash raised by selling stocks or bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow. CONCLUSION To sum up, although all these financial statements were discussed separately, they are all related. The changes in assets and liabilities that we can see on the Balance Sheet also reflect in the revenues and expenses that we can see on the Income Statement, which result in the company’s gains or losses. Cash flows provide more information about cash listed on the Balance Sheet and are related to net income shown on the Income Statement. Combined financial statements provide very powerful information for investors. LITERATURE 1. Beginner’s guide to financial statements. [interaktyvus]. Vilnius. [žiūrėta 2009 m. gruodžio 26 d.]. Prieiga per internetą:

Daugiau informacijos...

★ Klientai rekomenduoja

Šį rašto darbą rekomenduoja mūsų klientai. Ką tai reiškia?

Mūsų svetainėje pateikiama dešimtys tūkstančių skirtingų rašto darbų, kuriuos įkėlė daugybė moksleivių ir studentų su skirtingais gabumais. Būtent šis rašto darbas yra patikrintas specialistų ir rekomenduojamas kitų klientų, kurie po atsisiuntimo įvertino šį mokslo darbą teigiamai. Todėl galite būti tikri, kad šis pasirinkimas geriausias!