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locations. If not, they must direct the company to use any one of the valuation method
uniformly for the whole class of inventory.
COMPENSATION: COMPENSACION
This principle states that full details of the financial info should be shown without
expecting any compensation of debt by an asset, revenue by an expense, except if it
will be required by a specific case.
BS POSITION (FOTO)
BS ELEMENTS (FOTO)
ASSETS: These are the economic resources owned by the company (goods,
securities and rights.
Current Assets:
- These are made up of cash, and other resources that are expected
to turn into cash within one year of the balance sheet date.
- Current assets are presented in the order of liquidity, i.e., cash,
temporary investments, accounts receivable, inventory.
Non Current Assets:
- These assets are the company's long-term investments and the full
value will not be convert into cash within one accounting year.
- Depending on the type of asset, it may depreciate, amortize or
deplete, but these are all just technical terms for allocation.
- Examples of non-current assets include investments in another
company, capital expenditure and intangible assets such as
goodwill, brand recognition and intellectual property.
DATO ASSETS: The assets are listed in order by the length of time it would normally
take a firm with ongoing operations to convert them into cash. Clearly, cash is much
more liquid than property, plant, and equipment
LIABLILITY
It is the company's legal debts or obligations that arise during the course
of business operations. Liabilities are settled over time through the
transfer of money, goods or services to name a few.
Liabilities include loans, accounts payable, mortgages, deferred revenues
and accrued expenses.
Liabilities are a vital aspect of a company's operations because they are
used to finance projects and pay for future investment.
They can make transactions between businesses more efficient. For
example, the outstanding money that a company owes to its suppliers
would be considered a liability.
Current Liabilities
- Current liabilities are outstanding debts owed to creditors and
suppliers that must be paid within one year.
- Current liabilities include short term debt (overdrafts, promisory
notes, trade finance, etc) accounts payable, employees salaries,
accrued tax, accrued dividends, CTS, and other debts.
- Normally, companies withdraw cash from current assets in order to
pay their current liabilities.
Long Term Liabilities:
- They are outstanding debts owed to creditors and suppliers that
have a long term repayment plan of more than one year.
Long-term liabilities include items like debentures, loans, deferred
tax liabilities and pension obligations.
- The portions of long-term liabilities that come within the next 12
months are listed under current liabilities, as current portion of
long-term debt .
- Separating liabilities into current and long-term liabilities allows
analysts to have a clearer view of the company's current liquidity
position.
- Typically an analyst would want to see that a company has most of
the assets needed to pay for current liabilities in cash or cash
equivalent accounts. On the other hand, the assets needed to
satisfy long-term liabilities could be expected to be derived from
future earnings or future financing transactions.
EQUITY
It is the funds contributed by the owners (the stockholders) plus/minus the
retained earnings/losses.
The investment of cash and other assets in the business by the owners is
called contributed capital. The amount of earnings (profits) reinvested in
the business (and thus not distributed to stockholders in the form of
dividends) is called retained earnings.
Owner's equity is sometimes referred to as the book of value of a
company. This is because owner's equity is equal to the reported asset
amounts minus the reported liability amounts.
-
Legal reserve:
Reserve is a percentage of the profit achieved that is held back by the business to help when
times are hard. The most common examples are:
Legal reserve fund - it is required by many legislations and it must be
paid as a percentage of share capital.
share premium - amount paid by shareholders for shares in excess of
their nominal value
However, profits may be distributed also to other types of reserves,
Remuneration reserve - will be used later to pay bonuses to employees
or management.
Translation reserve: arises during consolidation of entities with different
reporting currencies
DATO BS: When analyzing a balance sheet, the Finance Manager should be aware of three
concerns:
1. Liquidity
2. Debt versus equity
3. Value versus cost
4.2
INCOME STATEMENT
o
o
A financial statement that measures a company's net profit or loss incurred over
a specific accounting period, typically a fiscal quarter or year.
In the context of corporate financial reporting, the income statement
summarizes a company's revenues (sales) and expenses, this is commonly a
quarterly and annually statement. The final net figure, along with other key
amounts are of major interest to the investment community.
It is the companys main financial tool to analyze profitability/return. Many
professionals still use the term "P&L," which stands for profit and loss statement.
3. Administrative Expenses
This considers the costs related to the management and support functions that are not
directly involved in the production and supply of goods and services offered by the entity.
Examples:
Salary cost of executive management
Legal and professional charges
Depreciation of head office building
Rent expense of offices used for administration and management purposes Cost of
functions / departments not directly involved in production such as finance department,
HR department and administration department, etc
4. Finance Charges
This make reference to the interest expense of loans and debentures.
The effect of present value adjustments of discounted provisions are also included in
finance charges (e.g. unwinding of discount on provision for decommissioning cost).
5. Expenses classification
The income statement also includes gains and losses, which result in an increase
(gains) or decrease (losses) of economic benefits. Profit/Gains and losses may or may
not result from ordinary business activities. For example,
a firm might sell surplus equipment used in its manufacturing operation that is no
longer needed. The difference between the sales price and book value is reported as a
gain or loss on the income statement.
Summarizing, net income is equal to income (revenues + gains) minus expenses
(including losses).
4.3