Financial Reports

1. Financial Reports

Bibigul Zhakupova

2.

Financial Reports consist of:
Financial Statements (main):
• Balance Sheet;
• Income Statement;
• Statement of Retained
Earnings;
• Cash Flow Statement.
Disclosure Notes.

3.

Financial Reports are prepared in
accordance with accounting standards,
e.g. IFRS or GAAP

4.

Main Financial Statements:
• Balance Sheet;
• Income Statement;
• Statement of Retained Earnings;
• Cash Flow Statement.

5.

Disclosure Notes
Mainly provide:
1.
Description of the main Accounting Policies;
2.
Explanation to some items/figures shown in
Financial Statements;
3.
Some additional information which is not in
Financial Statements, because do not belong
to the reporting period, however crucial for
investors to make decisions.

6.

Financial Statements
6
The objective of financial statements is to provide
faithful information about the company’s:
•Financial position - Balance Sheet;
•Financial performance – Income Statement;
•Cash flows – Cash Flow Statement.
Financial statements also show the results of the
management's stewardship of the resources entrusted
to it.

7. Balance Sheet

Balance Sheet shows a financial position at
the specific date and has three parts:
1. Assets
2. Liabilities
3. Owners/Stockholders Equity

8. Balance Sheet Statement of Financial Position

Vagabond Travel Agency
Balance Sheet
December 31, 2009
Assets
Cash
Liabilities
$
22,500
Notes payable
Notes receivable
10,000
Accounts payable
36,000
Accounts receivable
60,500
Salaries payable
3,000
Supplies
2,000
Total Liabilities
Land
100,000
Building
90,000
Office equipment
15,000
Capital stock
300,000
Retained earnings
Total OE
Total L&OE
Total Assets
$
$
$
41,000
80,000
Owners' Equity
150,000
70,000
$ 220,000
$ 300,000

9. Assets

Assets are the resources controlled by
the entity which are expected to bring
economic benefits to the entity in the
future.

10. Balance Sheet

Assets are listed by liquidity:
Short-term assets;
Long-term assets;

11. Assets

Current / Short-Term Assets
Will be converted to cash or
consumed within one year or
the operating cycle, whichever
is longer.

12. Operating Cycle of a Typical Manufacturing Company

Use cash to acquire raw materials
Convert raw materials to finished
product
Deliver product to customer
Collect cash from customer

13. Assets

Noncurrent / Long-Term Assets
Used within a period of time
longer than one year.
Not expected to be converted to
cash or consumed within one year
or the operating cycle, whichever
is longer.

14. Balance Sheet – Assets - Receivables

Accounts Receivable:
•Credit sale of short-term assets (e.g. goods,
supplies), or services.
Notes Receivable:
•Credit sale of long-term assets;
•Lending money.

15. Accounts vs. Notes Receivable

Case 1
ABC Inc. produces candies. On January 1, 2019, ABC Inc. delivered to XYZ
Co. candies for a total amount of $55,000. According to the signed agreement,
XYZ Co. will pay the amount due to ABC Inc. by March 31, 2019.
Will ABC Inc. record AR or NR on January1 ? Short-term or long-term?
Case 2
ABC Inc. produces candies. On January 1, 2019, ABC Inc. delivered to XYZ
Co. candies for a total amount of $55,000. According to the signed agreement,
XYZ Co. will pay the amount due to ABC Inc. by February 1, 2020.
Will ABC Inc. record AR or NR on January1 ? Short-term or long-term?

16. Accounts vs. Notes Receivable

Case3
ABC Inc. produces candies. The company has a computer which was used in the
office, however became idle. On January 1, 2019, ABC Inc. sold to XYZ Co. this
computer for $800. According to the signed agreement, XYZ Co. will pay the
amount due to ABC Inc. by March 31, 2019.
Will ABC Inc. record AR or NR on January1 ? Short-term or long-term?
Case 4
ABC Inc. produces candies. The company has a computer which was used in the
office, however became idle. On January 1, 2019, ABC Inc. sold to XYZ Co. this
computer for $800. According to the signed agreement, XYZ Co. will pay the
amount due to ABC Inc. by March 31, 2020.
Will ABC Inc. record AR or NR on January 1? Short-term or long-term?

17. Liabilities

Liabilities are the present obligations
/debts of the entity arising from the
past events, the settlement of which is
expected to result in an outflow of
resources

18. Balance Sheet

Liabilities are listed by time of payment:
Short-term liabilities (to be paid
within 1 year);
Long-term liabilities (to be paid
within a period longer than 1 year);

19. Balance Sheet – Liabilities - Payables

Accounts Payable:
•Credit purchase of short-term assets (e.g.
goods, supplies), or services.
Notes Payable:
•Credit purchase of long-term assets;
•Lending money.

20.

Accounts vs. Notes Payable
Example 1
ABC Inc. produces candies.
On January 1, 2019, ABC Inc. purchased sugar from XYZ Co. as a raw
material, on credit, for the total amount of $10,000.
• Sugar was delivered to ABC Inc. on January 1, 2019.
• According to agreement with XYZ Co., ABC Inc. has to pay $10,000:
• by February 28, 2019;
• by March 31, 2020.
On January 1, 2019, ABC Inc. will record an Account or Note Payable?
Will it be short-term or long-term?

21.

Accounts vs. Notes Payable
Example 2
ABC Inc. produces candies.
On January 1, 2019, ABC Inc. borrowed $100,000 from Alfa Bank.
This amount plus 12% interest is due on December 31, 2019;
This amount plus 12% interest is due on December 31, 2022;
On January 1, 2019, ABC Inc. will record a Note Payable of $100,000. Is this
NP short-term or long-term?
$100,000 - the Principal amount of the loan
$12,000 – the annual Interest = $100,000 x 0.12. The liability for interest is recorded
separately, as Interest Payable.

22. Liabilities

Example 2
ABC Inc. produces candies.
On January 1, 2019, ABC Inc. purchased from XYZ Co. equipment for a total
amount of $90,000.
According to the signed agreement, ABC Inc. will pay the amount due to XYZ
Co. by:
July 31, 2019;
• April 31, 2020.
On January 1, 2019, ABC Inc. will record an AP or NP?
Short-term or long-term?

23. Equity

Equity is the residual interest of
owners in the assets of the entity after
deducting all its liabilities.

24. Accounting Equation

Assets = Liabilities + Owners’ Equity
$300,000 =
$80,000 +
$220,000

25. Underlying Concepts

Business entity concept;
Going concern assumption;
Historical cost principle;
Objectivity principle;
Conservatism principle;
Materiality principle;
Efficiency of the accounting system.

26. Income Statement

ABC Inc.
Income Statement
for the year 2017
Revenues
(Costs)
(Expenses)
Net Income (Profit)/ Net Loss

27. Income Statement

Revenues: increases in economic benefit during an
accounting period in the form of inflows or enhancements
of assets, or decrease of liabilities that result in increases in
equity. It does not include the contributions made by the
equity participants (for example owners, partners or
shareholders).
Expenses: decreases in economic benefits during an
accounting period in the form of outflows, or depletions of
assets or incurrences of liabilities that result in decreases in
equity. However, these don't include the distributions made
to the equity participants.

28. Revenues

Revenues – earnings from the main business
activities/operations of the company
Realization Principle – revenues are recognized
at the point of time when goods are delivered to
the customer, or service is performed, disregarding
whether cash was received at that date or not.

29. Expenses

Expenses – what the company spends in order to earn
revenues, in other words – to conduct the main business
activities.
Matching Principle – expenses are recognized at the
point of time when the related revenues are recognized,
disregarding whether cash was paid at that date or not.

30. Income Statement

Case 1
You was in the US and purchased the last version of iPhone for $1800. Ticket
back to Almaty cost you $90. Your friend asked you to sell her the iPhone for
$2100. You agreed.
Required: What is your Revenue, Expenses and Profit or Net Income/Loss from
those transactions?

31. Income Statement

Case 1
You was in the US and purchased the last version of iPhone for $1800. Ticket
back to Almaty cost you $90. Your friend asked you to sell her the iPhone for
$2100. You agreed.
Required: What is your Revenue, Expenses and Profit or Net Income/Loss from
those transactions?
Purchase and sale of iPhone
Revenues
$2,100
(Costs)
($1,800)
(Expenses)
($90)
Net Income (Profit)
$210

32. Income Statement

Case 2
You are an owner of a small shop/kiosk selling only one type of mineral
water.
The following transactions happened during August 2020:
• 01.08
Purchased 1200 bottles of mineral water for $0.1 each, paid cash;
• 01 – 31.08 Sold all 1200 bottles of mineral water for $1.2 each for cash;
31.08
• 31.08
Paid $400 for the rent of kiosk for August;
Paid $90 for kiosk utilities for August
Required: What is your Revenue, Costs, Expenses and Net Income/Loss for
August 2020?

33. Income Statement

Case 2
You are an owner of a small shop/kiosk selling only one type of mineral water.
The following transactions happened during August 2020:
01.08 Purchased 1200 bottles of mineral water for $0.1 each, paid cash;
01 – 31.08 Sold all 1200 bottles of mineral water for $1.2 each for cash;
31.08
Paid $400 for the rent of kiosk for August;
31.08 Paid $90 for kiosk utilities for August
Required: What is your Revenue, Costs, Expenses and Profit or Net Income/Loss for
August 2020?
Income Statement
Kiosk
August 2020 (period of time)
Revenues 1200 x $1.2 = $1,440
(COGS) 1200 x $0.1 = ($120)
(Rent Expense)
($400)
Utilities Expense
($90)
Net Income
$830
Cost of Goods Sold (COGS)

34. Income Statement

Case 2
You are an owner of a small shop/kiosk selling only one type of mineral
water.
The following transactions happened during August 2020:
• 01.08
Purchased 1200 bottles of mineral water for $0.1 each, paid cash;
• 02.08
Purchased a cashier machine for $648, with useful life is 3 years;
• 02 – 31.08 Sold 900 bottles of mineral water for $1.2 each for cash;
31.08
• 31.08
Paid $400 for the rent of kiosk for August;
Paid $90 for kiosk utilities for August
Required: What is your Revenue, Costs, Expenses and Net Income/Loss for
August 2020?

35. Income Statement

Case 2
You are an owner of a small shop/kiosk selling only one type of mineral water.
The following transactions happened during August 2020:
01.08 Purchased 1200 bottles of mineral water for $0.1 each, paid cash;
02.08 Purchased a cashier machine for $648, with useful life is 3 years;
02 – 31.08 Sold 900 bottles of mineral water for $1.2 each for cash;
31.08
Paid $400 for the rent of kiosk for August;
31.08 Paid $90 for kiosk utilities for August
Required: What is your Revenue, Costs, Expenses and Profit or Net Income/Loss for
August 2020?
Income Statement
Kiosk
August 2020 (period of time)
Revenues 900 x $1.2 = $1,080
COGS
900 x $0.1 = ($90)
Rent Expense
($400)
Utilities Expense
($90)
Depreciation Expense
($18)
Net Income
$482
Cost of Goods Sold (COGS)

36. Personal Finance Example

Akhmetova Aliya, works as consultant at the ABC Co.
Following information was collected for the month of August 2020:
Salary for August
800,000 tg
Food for August
80,000 tg
Apartment rent for August
120,000 tg
Utilities for August
25,000 tg
Purchased a car
7,200,000 tg – will be used 5 years
If personal Income Statement is prepared, what would be Aliya’s
net income for August 2020?

37. Personal Finance Example

Personal Income Statement
Salary for August
800,000 tg
Food for August
(80,000 tg)
Apartment rent for August
(120,000 tg)
Utilities for August
(25,000 tg)
Depreciation Expense
(120,000) – for August
NI
455,000

38. Realization Principle Revenues are recognized at the point of time when goods are delivered to the customer, or service is

performed, disregarding whether cash was received at that date or not.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
Case 2
Date
Transaction
15.01.12
A customer –XYZ Co., made a pre-payment of $500 for the
consulting services to be rendered later.
01.02.12
Consulting services were actually rendered to XYZ Co. for the
entire amount of the prepayment.
1. At what date ABC Inc. should recognize revenue of $500 for the consulting service
provided?
2. At what date the company will have a cash inflow of $500 due to this transaction?

39. Realization Principle Revenues are recognized at the point of time when goods are delivered to the customer, or service is

performed, disregarding whether cash was received at that date or not.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
Case 1
Date
Transaction
20.01.12
Consulting service was provided to XYZ Co. Price of the
service is $500. According to the signed agreement, XYZ Co.
should pay this amount by March 31, 2012.
25.03.12
XYZ Co. paid for the consulting service.
1. At what date ABC Inc. should recognize revenue of $500 for the consulting service
provided?
2. At what date the company will have a cash inflow of $500 due to this transaction?

40. Realization Principle Revenues are recognized at the point of time when goods are delivered to the customer, or service is

performed, disregarding whether cash was received at that date or not.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
Case 1
ABC Inc. provides consulting service to various clients
Date
Transaction
15.01.12
Consulting service was provided to XYZ Co. for $500.
15.01.12
XYZ Co. paid for the consulting service.
1. At what date ABC Inc. should recognize revenue of $500 for the consulting service
provided?
2. At what date the company will have a cash inflow of $500 due to this transaction?

41. Matching Principle Expenses are recognized (recorded) as expenses at a date when related to those expenses revenues were

recognized, disregarding when cash was paid for those expenses by the
company.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
It rents an office for $3,000 per month.
Case 1
Date
Transaction
01.01.12 ABC Inc. occupied the office.
01.01.12 ABC Inc. paid $3,000 for the rent of the office for January 2012.
Case 2
Date
01.01.12
31.01.12
Date
01.01.12
05.02.12
Transaction
ABC Inc. occupied the office.
ABC Inc. paid $3,000 for the rent of the office for January 2012.
Case 3
Transaction
ABC Inc. occupied the office.
ABC Inc. paid $3,000 for the rent of the office for January 2012.

42. Matching Principle Expenses are recognized (recorded) as expenses at a date when related to those expenses revenues or benefits

were recognized, disregarding when cash was paid for those expenses by
the company.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
It rents an office for $3,000 per month.
Case 1
Date
Transaction
01.01.12 ABC Inc. occupied the office.
01.01.12 ABC Inc. paid $3,000 for the rent of the office for January 2012.
1. At what date ABC Inc. should recognize office rent expense of $3,000?
2. At what date the company will have a cash outflow of $3,000

43. Matching Principle Expenses are recognized (recorded) as expenses at a date when related to those expenses revenues were

recognized, disregarding when cash was paid for those expenses by the
company.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
It rents an office for $3,000 per month.
Case 2
Date
01.01.12
31.01.12
Transaction
ABC Inc. occupied the office.
ABC Inc. paid $3,000 for the rent of the office for January 2012.
1. At what date ABC Inc. should recognize office rent expense of $3,000?
2. At what date the company will have a cash outflow of $3,000

44. Matching Principle Expenses are recognized (recorded) as expenses at a date when related to those expenses revenues were

recognized, disregarding when cash was paid for those expenses by the
company.
ABC Inc. is a company providing consulting services to other enterprises or individuals.
It rents an office for $3,000 per month.
Case 3
Date
01.01.12
05.02.12
Transaction
ABC Inc. occupied the office.
ABC Inc. paid $3,000 for the rent of the office for January 2012.
1. At what date ABC Inc. should recognize office rent expense of $3,000?
2. At what date the company will have a cash outflow of $3,000

45. Statement of Comprehensive Income

Statement of Comprehensive Income consists of
the Income Statement (Statement of Profit/Loss)
and Other Comprehensive Income items

46. Statement of Retained Earnings

Retained Earnings/Deficit – accumulated
amount of net income/loss for the period of
time the company was operating, less all
the dividends paid during this period of time.

47. Statement of Retained Earnings

Retained Earnings/Deficit – accumulated amount of net
income/loss for the period of time the company was operating,
less all the dividends paid during this period of time.
RE Example
ABC Inc. started operations in the year 2016.
The following data was collected for the years 2016-2019:
2016
2017
2018
2019
Net Income/Loss
$1,000
($2,000)
$10,000
$25,000
Dividends
$200
$0
$2,000
$5,000
Retained
Earnings/Deficit?

48. Statement of Retained Earnings

Retained Earnings/Deficit – accumulated amount of net
income/loss for the period of time the company was operating,
less all the dividends paid during this period of time.
RE Example
ABC Inc. started operations in the year 2016.
The following data was collected for the years 2016-2019:
2016
2017
2018
2019
Net Income/Loss
$1,000
($2,000)
$10,000
$25,000
Dividends
$200
$0
$2,000
$5,000
Retained
Earnings/Deficit?

49. ABC Inc. Statement of Retained Earnings For the Year 2016

Retained Earnings beg. bal. 01.01.16
$0
Add: Net Income/Loss (year 2016)
$
Less: Dividends (year 2016)
($)
Retained Earnings end. bal. 31.12.16
$

50. ABC Inc. Statement of Retained Earnings For the Year 2017

Retained Earnings beg. bal. 01.01.16
$0
Add: Net Income/Loss (year 2016)
$
Less: Dividends (year 2016)
($0)
Retained Earnings end. bal. 31.12.16
$

51. ABC Inc. Statement of Retained Earnings For the Year 2018

Retained Earnings beg. bal. 01.01.16
$0
Add: Net Income/Loss (year 2016)
$
Less: Dividends (year 2016)
($0)
Retained Earnings end. bal. 31.12.16
$

52. ABC Inc. Statement of Retained Earnings For the Year 2019

Retained Earnings beg. bal. 01.01.16
$
Add: Net Income/Loss (year 2016)
$
Less: Dividends (year 2016)
($0)
Retained Earnings end. bal. 31.12.16
$

53. Cash Flow Statement

Cash inflows and outflows from:
1. Operating Activities;
2. Investing Activities;
3. Financing Activities.

54.

JJ's Lawn Care Service
Statement of Cash Flows
For the Month Ended May 31, 2009
Cash flows from operating activities:
Cash received from customers
Cash paid for….
Net cash provided by operating activities
Cash flows from investing activities:
Cash received from ….
Cash paid for….
Net cash used by investing activities
Cash flows from financing activities:
Cash received from ….
Cash paid for….
Net cash provided by financing activities
Increase in cash for month
Cash balance, May 1, 2009
Cash balance, May 31, 2009

55. Cash Flows from Operating Activities

Cash Inflows and Outflows related to
MAIN BUSINESS ACTIVITIES!
Cash inflows - cash the company received from the main
business operations:
Cash received from customers;
Cash received as interest;
Cash received as dividends;
Cash outflows - cash the company spent to conduct the main
business operations:
Cash paid for merchandise;
Cash paid for salaries;
Cash paid for operating expenses (rent, supplies, utilities, etc.).

56. Cash Flows from Investing Activities

Cash outflows - Cash spent to:
1. Purchase of Long-Term Assets;
2. Purchase of securities of other companies;
3. Lending money (the principal amount);
Cash inflows - Cash received from:
1. Sale of Long-Term Assets;
2. Sale of securities of other companies;
3. Collecting the previously lent money back (the
principal amount);

57. Cash Flows from Financing Activities

Cash inflows - Cash received from:
1. Sale of own Bonds;
2. Sale of own stocks;
3. Borrowing money (the principal amount);
Cash outflows - Cash spent to:
1. Retirement of own bonds;
2. Payment of dividends;
3. Purchase of own stocks back (Treasury Stocks);
4. Payment of borrowed money back (the principal amount);

58. Statement of Changes in Owners Equity

The statement explains the changes in
a company's Share Capital, accumulated
reserves and retained earnings over the
reporting period.

59. Income Statement

Example: ABC Inc. is a consulting company, providing consulting
services to the clients.
ABC Inc.
Income Statement
for the year 2017
Service Revenues
Salaries Expense
Rent Expense
Utilities Expense
Supplies Expense
Income Tax Expense
Net Income
$550,000
($220,000)
($48,000)
($4,000)
($6,200)
($54,360)
$217,440

60. ABC Inc. Statement of Retained Earnings For the Year 2017

Retained Earnings beg. bal. 01.01.17
$50,000
Add: Net Income/Loss (year 2017)
$217,440
Less: Dividends (year 2017)
($20,000)
Retained Earnings end. bal. 31.12.17
$247,440

61. Balance Sheet

Assets
Short-Term Assets
Cash and cash equivalents
Accounts Receivable
Allowance for Doubtful Accounts
Notes Receivable
Short-term investments
Pre-paid rent
Pre-paid insurance
Pre-paid salaries
Supplies
Inventory
Long-Term Assets
Land
Building
Accum. Depr. (Building)
Furniture
Accum. Depr. (Furniture)
Office car
Accum. Depr. (Car)
Office Equipment
Accum. Depr. (Off. Equipment)
Total Assets
ABC Inc.
Balance Sheet
31 December 2017
Liabilities
Short-Term Liabilities
$150,000 Utilities payable
$80,000 Salaries payable
($1,100) Interest payable
$30,000 Taxes payable
$45,000 Accounts payable
$12,000 Unearned revenue
$3,000 Notes payable
$25,000
$2,300 Long-Term Liabilities
$500,000 Notes payable
Bonds payable
Premium on BP
$250,000
$324,750 Total Liabilities
($100,000)
$120,000 Stockholder's Equity
($60,000) Preferred stocks
$25,000 Common stocks
($15,000) APIC (PS)
$30,000 APIC (CS)
($25,000) Treasury stocks
Unrealized Holding Gain
$1,395,950 Revaluation reserves
Retained Earnings
$50,000
$100,000
$20,000
$450,000
($90,000)
$12,000
$35,000
$247,440
Total Stockholder's Equity
$854,440
Total Liabilities & Stockholder's Equity
$800
$95,000
$250
$6,500
$42,000
$67,000
$10,000
$80,000
$200,000
$40,000
$541,550
$1,395,950