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, Chapter 2 “An overview of Financial Statements”
Types of Financial Statements
1. The balance sheet = provides information regarding a company’s assets and liabilities at a
specific point in time
- Assets = represent sources of value
- Liabilities = represent owner’s equity
2. The income statement = provides information regarding revenues and expenses over a
period of time
3. The cash flow statement = provides information regarding a company’s sources and uses of
cash over a period of time
- Operating activities = related to the core business activities
- Investing activities = related to the purchase or sale of fixed assets
- Financing activities = related to obtaining or repaying additional funds
4. The statement of changes in owner’s equity = provides detailed information regarding
changes in the company’s equity capital over a period of time
An overview of the Balance Sheet
The balance sheet provides insights regarding short-term liquidity and long-term solvency
Major sections;
- Assets = resources that are expected to generate future economic benefits
Current asset = expected to be liquidated within one year (one operating cycle)
Non-current asset = expected to provide long-term economic benefits
- Liabilities = obligations that will lead to an outflow of economic benefits
Current liability = an obligation that is expected to be fulfilled within one year
Non-current liability = an obligation that is expected to be fulfilled after one year
Working capital = the difference between current assets and current liabilities
- Equity = the residual “interest” of the company’s owners, determined as the difference
between assets and liabilities
Measuring Assets & Liabilities
2 alternative measuring methods
- Historical cost = the value of the asset/liability when it was acquired, including;
acquisition, preparation or installation costs
- Fair value (market value) = the amount at which an asset could be sold or a liability could
be fulfilled
Off balance Sheet items = There are some items and disclosures that are off the balance sheet, and
included in the financial notes.
e.g. Operating lease is never on the balance sheet
The balance sheet provides 2 main insights;
1. The level of debt = the amount of money that the company has borrowed
2. The maturity of the debt = when the loans come due
You want to know if the company has enough money to pay its upcoming loans
An Overview of the Income Statement
The income statement (or the Profit & Loss) Income = revenue – expenses
1
, Chapter 2 “An overview of Financial Statements”
Types of Financial Statements
1. The balance sheet = provides information regarding a company’s assets and liabilities at a
specific point in time
- Assets = represent sources of value
- Liabilities = represent owner’s equity
2. The income statement = provides information regarding revenues and expenses over a
period of time
3. The cash flow statement = provides information regarding a company’s sources and uses of
cash over a period of time
- Operating activities = related to the core business activities
- Investing activities = related to the purchase or sale of fixed assets
- Financing activities = related to obtaining or repaying additional funds
4. The statement of changes in owner’s equity = provides detailed information regarding
changes in the company’s equity capital over a period of time
An overview of the Balance Sheet
The balance sheet provides insights regarding short-term liquidity and long-term solvency
Major sections;
- Assets = resources that are expected to generate future economic benefits
Current asset = expected to be liquidated within one year (one operating cycle)
Non-current asset = expected to provide long-term economic benefits
- Liabilities = obligations that will lead to an outflow of economic benefits
Current liability = an obligation that is expected to be fulfilled within one year
Non-current liability = an obligation that is expected to be fulfilled after one year
Working capital = the difference between current assets and current liabilities
- Equity = the residual “interest” of the company’s owners, determined as the difference
between assets and liabilities
Measuring Assets & Liabilities
2 alternative measuring methods
- Historical cost = the value of the asset/liability when it was acquired, including;
acquisition, preparation or installation costs
- Fair value (market value) = the amount at which an asset could be sold or a liability could
be fulfilled
Off balance Sheet items = There are some items and disclosures that are off the balance sheet, and
included in the financial notes.
e.g. Operating lease is never on the balance sheet
The balance sheet provides 2 main insights;
1. The level of debt = the amount of money that the company has borrowed
2. The maturity of the debt = when the loans come due
You want to know if the company has enough money to pay its upcoming loans
An Overview of the Income Statement
The income statement (or the Profit & Loss) Income = revenue – expenses
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