COMPANIES (3) - Financial Statements of Companies
- Kabelo Nchabeleng
The objective of financial statements is to provide information about the entity’s
assets, liabilities, equity and reserves (Statement of Financial Position - Balance
Sheet), income and expenses (Statement of Profit or Loss - Income Statement), and
cash flows and liquidity (Statement of Cash Flows). This is information used by the
relevant stakeholders (existing AND potential investors, loan holders and other
creditors) to assess the ability of management to manage the entity’s resources,
which include, among other things, the shareholders’ investments and the
loanholders’ borrowings (equity and debt - gearing).
Information disclosed in the different financial statements and accompanying notes
includes:
- Recognised assets, liabilities, equity (real accounts/Balance sheet accounts)
income and expenses (nominal accounts) and their nature;
- Assets and liabilities that have not been recognised;
- Information about cash flows from operating, investing and financing activities.
- Information about contributions from and distributions to equity holders
(statement of changes in equity - not covered in Grade 12);
- Information about the methods used in calculating and estimating figures on
these financial statements (Accounting policies and estimates).
In a nutshell, financial statements provide information about the financial
performance and the financial position of the company. Financial statements give
information about the financial position on a particular day of the financial year, the
results of operations during a financial year and the flows of cash resources during a
financial year.
Financial statements also provide information about the company’s ability to settle
short- and long-term obligations and to pay investors returns on their investment in
the company. So the most important users of the annual financial statements (AFS)
are existing and potential investors and lenders and creditors.
1.1. Statement of Profit or Loss (Income Statement)
In grade 12, you will only do the profit or loss section of the statement and income
tax section recorded separately.
“Profit or Loss” section comprises all income (increases in assets or decreases in
liabilities that result in increases in equity, other than those relating to the
contributions made by holders of equity claims.), and expenses (decreases in assets
or increases in liabilities that result in decreases in equity, other than those relating to
the distributions made to holders of equity claims.) recognised in a 12-month period.
, The Income Statement is prepared on an accrual basis, meaning incomes are
recorded when they are earned and not necessarily when the cash is received, while
expenses are recorded when they are incurred and not necessarily when the cash is
paid.
The Income Statement shows the profit or loss of a company made from daily
operations. In grade 12, two new expenses - Directors’ Fees and Audit Fees are
introduced. And income tax appears separately in the income statement.
To prepare an Income Statement from a pre-adjustment trial balance, follow these
steps:
STEP 1:
Enter the pre-adjustment figures next to the line items in the answer sheet.
STEP 2:
READ the adjustment carefully:
⇒If necessary, calculate the adjustment amount.
⇒Decide on which account is to be debited and which account is to be credited.
⇒On the answer sheet, reflect a + or - with respect to each adjustment next to the
already entered pre-adjustment figure.
*Accrued amounts are added and deferred amounts (received/paid in advance)
are subtracted.
STEP 3:
When all adjustments have been completed, calculate your final figures and enter
them in the column on the right.
STATEMENT OF PROFIT OR LOSS OF … LTD. FOR THE YEAR ENDED….
Sales/Revenue/Turnover 1 xxx
Cost of sales 2 (xxx)
Gross profit 3 xxx
Other operating income 4 xxx
Trading stock surplus (physical stock > theoretical balance) xxx
Bad debts recovered (etc…) xxx
Gross operating income 5 xxx
Operating expenses 6 (xxx)
Lease of assets xxx
- Kabelo Nchabeleng
The objective of financial statements is to provide information about the entity’s
assets, liabilities, equity and reserves (Statement of Financial Position - Balance
Sheet), income and expenses (Statement of Profit or Loss - Income Statement), and
cash flows and liquidity (Statement of Cash Flows). This is information used by the
relevant stakeholders (existing AND potential investors, loan holders and other
creditors) to assess the ability of management to manage the entity’s resources,
which include, among other things, the shareholders’ investments and the
loanholders’ borrowings (equity and debt - gearing).
Information disclosed in the different financial statements and accompanying notes
includes:
- Recognised assets, liabilities, equity (real accounts/Balance sheet accounts)
income and expenses (nominal accounts) and their nature;
- Assets and liabilities that have not been recognised;
- Information about cash flows from operating, investing and financing activities.
- Information about contributions from and distributions to equity holders
(statement of changes in equity - not covered in Grade 12);
- Information about the methods used in calculating and estimating figures on
these financial statements (Accounting policies and estimates).
In a nutshell, financial statements provide information about the financial
performance and the financial position of the company. Financial statements give
information about the financial position on a particular day of the financial year, the
results of operations during a financial year and the flows of cash resources during a
financial year.
Financial statements also provide information about the company’s ability to settle
short- and long-term obligations and to pay investors returns on their investment in
the company. So the most important users of the annual financial statements (AFS)
are existing and potential investors and lenders and creditors.
1.1. Statement of Profit or Loss (Income Statement)
In grade 12, you will only do the profit or loss section of the statement and income
tax section recorded separately.
“Profit or Loss” section comprises all income (increases in assets or decreases in
liabilities that result in increases in equity, other than those relating to the
contributions made by holders of equity claims.), and expenses (decreases in assets
or increases in liabilities that result in decreases in equity, other than those relating to
the distributions made to holders of equity claims.) recognised in a 12-month period.
, The Income Statement is prepared on an accrual basis, meaning incomes are
recorded when they are earned and not necessarily when the cash is received, while
expenses are recorded when they are incurred and not necessarily when the cash is
paid.
The Income Statement shows the profit or loss of a company made from daily
operations. In grade 12, two new expenses - Directors’ Fees and Audit Fees are
introduced. And income tax appears separately in the income statement.
To prepare an Income Statement from a pre-adjustment trial balance, follow these
steps:
STEP 1:
Enter the pre-adjustment figures next to the line items in the answer sheet.
STEP 2:
READ the adjustment carefully:
⇒If necessary, calculate the adjustment amount.
⇒Decide on which account is to be debited and which account is to be credited.
⇒On the answer sheet, reflect a + or - with respect to each adjustment next to the
already entered pre-adjustment figure.
*Accrued amounts are added and deferred amounts (received/paid in advance)
are subtracted.
STEP 3:
When all adjustments have been completed, calculate your final figures and enter
them in the column on the right.
STATEMENT OF PROFIT OR LOSS OF … LTD. FOR THE YEAR ENDED….
Sales/Revenue/Turnover 1 xxx
Cost of sales 2 (xxx)
Gross profit 3 xxx
Other operating income 4 xxx
Trading stock surplus (physical stock > theoretical balance) xxx
Bad debts recovered (etc…) xxx
Gross operating income 5 xxx
Operating expenses 6 (xxx)
Lease of assets xxx
