FINANCIAL MANAGEMENT

Chapter 11 – UNDERSTANDING FINANCIAL STATEMENTS

LEARNING OBJECTIVES
After studying Chapter 11, you should be able to:
1. Understand how business activities are reported through financial statements.
2. Appreciate the general objectives of financial statements.
3. Enumerate and identify the needs of various users that demand financial
accounting information.
4. Enumerate the sources of information about a business enterprise.
5. Understand the benefits and costs of supplying accounting information.
6. Identify the required financial statements and know how they are
interconnected.
7. Know the nature and significance of the
a. Balance Sheet Statement
b. Statement of Comprehensive Income
c. Statement of Stockholders' Equity, and
d. Statement of Cash Flows

INTRODUCTION
This chapter provides a framework and several tools to help us analyze companies
and value their securities. At this point, it is helpful to imagine yourself as a specific
user of financial statements. For example, assume that you are a manager deciding
whether to acquire another company or divest of a current division? Or imagine
yourself as an equity or credit analyst - how do you assess and communicate an
investment appraisal or credit risk report? This focused perspective will enhance
one's learning process and makes it relevant.

HOW BUSINESS ACTIVITIES ARE REPORTED

To be able to analyze a company effectively or infer its value, it is important that one
must understand the company's business activities. This can be accomplished
through the financial statements. Financial statements report on a company's
performance and financial condition and reveal executive management's privileged
information and insights.
Financial statements serve the needs of different users. The operation of the
accounting information system involves application of accounting standards to
produce financial statements that provide the insight on the business activities of the
company under analysis.
Accounting information should be used in the business context in which the
information is created. All companies without exception, plan business activities,
finance those activities, invest in those activities and then, engage in operating
activities. Business firms conduct all these activities while confronting business
forces, including market constraints and competitive pressures.
Financial statements also provide crucial input for strategic planning, as well as,
information about the relative success of those plans which can be used to corrective
action and make new operating, investing, and financing decisions.

GENERAL OBJECTIVES OF FINANCIAL STATEMENTS

The important objectives of financial statements are:
1. Providing Information for Economic Decisions
The economic decisions that are taken by the users of financial statements require an
evaluation of the ability of an enterprise to generate cash and cash equivalents, and
the timing and certainty of their generation. This ability ultimately determined the
capacity of an enterprise to pay its employees and suppliers, meet interest payments,
repay loans, and make distributions to its owners.
2. Providing Information about Financial Position
The financial position of an enterprise is affected by the economic resources such as:
a. Information about the economic resources controlled by the enterprise
and its capacity in the past to modify these resources is useful in
predicting the ability of the enterprise to generate cash and cash
equivalents in the future.
b. Information about financial structure is useful in predicting future
borrowing needs and how future profits and cash flows will be distributed
among those with an interest in the enterprise.
c. Information is useful in predicting how successful the enterprise is likely
to be in raising further finance.
 d. Information about liquidity and solvency is useful in predicting the ability
of the enterprise to meet the financial commitments as fall due. Liquidity
refers to the availability of cash in the near future after taking account of
financial commitments and solvency refers to the availability of cash over
the longer term to meet the financial commitments as they fall due.

3. Providing Information about Performance of an Enterprise

Another important objective of the financial statements is that, it provides
information about the performance and in particular its profitability, which is
required in order to assess potential changes in the economic resources that are likely
to control in future. Information about variability of performance is important and
useful in predicting the capacity of the enterprise to generate cash flows from its
existing resource base, and in forming judgement about the effectiveness with which
the enterprise might employ additional resources.
4. Providing Information about Changes in Financial Position
The financial statements provide information concerning changes in the financial
position of an enterprise, which is useful in order to assess its investing, financing
and operating activities during the reporting period. This information is useful in
providing the user with a basis to assess the ability of the enterprise to generate cash
and cash equivalents, and the needs of the enterprise to utilize those cash flows.

DEMAND FOR FINANCIAL ACCOUNTING INFORMATION

Decision makers and other stakeholders demand information on the company's past
and prospective returns and risks to facilitate efficient contracting and risk-sharing.
The broad classes of users that demand financial accounting information include the
following:
1. Managers and Employees
For their own well-being and prospective earnings, potential managers and
employees need accounting information on the financial condition, profitability and
prospects of their companies as well as comparative financial information on
competing companies and business opportunities. Management uses financial
statements to raise financing for the company, to meet disclosure requirements and
to serve as a basis for executive remuneration and bonuses, for wage negotiations
and to meet disclosure requirements.
 2. Investors and Analysts
Financial statements are used by these parties to decide whether to buy or sell equity
shares. Expectations about future profitability and the ability to generate cash
influence the price of securities and a company's ability to borrow money at
favorable terms. Other information intermediaries such as, financial press writers
and investment analysts are interested in predicting companies' future performance.
3. Creditors and Suppliers
Banks and other lenders need financial accounting information to help determine
loan terms, loan amounts, interest rates and required collateral. Suppliers demand
financial data to establish credit terms and to determine their long-term commitment
to supply-chain relations. Both creditors and suppliers use information to monitor
and adjust their contractual requirements and environment with a business firm.
4. Shareholders and Directors
Financial accounting information is needed by owners and directors of the company
to assess its profitability and risks, to evaluate managerial performance and to help
make leadership decisions.
5. Regulatory and Tax Agencies
The SEC, BIR, BSP and other legal institutions demand financial accounting
information to monitor the business firms' compliance with laws, for public
protection, price setting and for setting tax and other regulatory policies.
6. Customers and Potential Strategic Partners
Customers both current and potential, need accounting information to evaluate a
company's ability to provide products and services as agreed and to assess the
company's reliability and
staying power. Potential strategic partners would wish to estimate the firm's
profitability to assess the fairness of returns on mutual transactions and strategic
alliances.
7. Other decision makers
Financial accounting information is required for varied purposes by other parties
from assessing damages for environmental abuses to making policy and decisions
involving economic, social, taxation and other initiatives.
SOURCES OF INFORMATION ABOUT BUSINESS ENTERPRISE
In general, the quantity and quality of accounting information that companies supply
are determined by the manager's assessment of the benefits and costs of disclosure.
In the Philippines, publicly listed companies must file financial accounting
information with the Securities and Exchange Commission (SEC). These are;
1. The audited annual report that includes the four financial statements
(Statement of Financial Position [traditionally known as the Balance
Sheet Statement], Statement of Comprehensive Income, Statement of
Stockholders' Equity, and Statement of Cash Flow) with explanatory
notes and the management's discussion and analysis of financial results.
2. The unaudited quarterly or interim reports that include summary versions
of the four financial statements and limited additional disclosure.
All other registered corporations and partnerships are likewise required to file
annually audited financial statements with accompanying explanatory notes with the
SEC.
BENEFITS OF DISCLOSURE
The advantages of supplying accounting information extend to a company's capital,
labor, input and output markets. Companies compete in these markets. For instance,
debt and equity financing are sourced from capital markets and the better a
company's prospects, the lower will be its cost of capital as reflected in higher stock
prices or lower interest rate. The same is true for a company's recruitment efforts in
labor markets and its ability to establish and maintain superior supplier-customer
relations in the input and output markets.
The company's ability to disclose reliable (audited) accounting information about its
products, processes and other business activities enable them to better compete in
capital, labor, input and output markets.

COSTS OF DISCLOSURE
The preparation and dissemination costs of supplying accounting information can be
substantial, and the possibility for information to produce competitive disadvantages
is high.
Companies are apprehensive that disclosure of their activities such as product or
segment successes or failures, strategic initiatives, technological or systems
innovations could harm their competitive advantages. Companies also face possible
lawsuits when disclosures create expectations that eventually are not met. Disclosure
costs including political costs are high for highly visible companies such as large
telecommunication conglomerate (e.g. PLDT and Digitel), oil companies and
software companies because they are favorite targets of public scrutiny.

CONSTRAINTS ON RELEVANT AND RELIABLE INFORMATION

1. Timeliness
If there is undue delay in the reporting of information, it may lose its relevance.
Management may need to balance the relative merits of timely reporting and the
provision of reliable information. To provide information on a timely basis, it may
often be necessary to report before all aspects of a transaction or other event are
known, conversely if thus impairing reliability. Conversely, if reporting is delayed
until all aspects are known, the information may be highly reliable but of little use to
users who have had to make decisions in the interim. In achieving a balance between
relevance and reliability, the overriding consideration is how best to satisfy the
economic decision-making needs of users.
2. Balance Between Benefit and Cost
The balance between benefit and cost is a pervasive constraint rather than a
qualitative characteristic. The benefits derived from information should exceed the
cost of providing it. The evaluation of benefits and costs is, however, substantially a
judgmental process.
3. Balance Between Qualitative Characteristics
In practice, a balancing or trade-off between qualitative characteristics is often
necessary. Generally, the aim is to achieve an appropriate balance among the
characteristics in order to meet the objective of financial statements. The relative
importance of the characteristics in different cases is a matter of professional
judgment.
4. True Fair View or Fair Presentation
Financial statements are frequently described as showing a true and fair view of the
financial position, performance and changes in financial position of an enterprise.
Although, this framework does not deal directly with such concepts, the applications
of the principal qualitative characteristics and of appropriate accounting standards,
normally results in financial statements that convey what is generally understood as
a true and fair view of such information.
FINANCIAL STATEMENTS
Business activities are periodically reported by companies using four financial
statements: the Statement of Financial Position, Statement of Comprehensive
Income, Statement of Stockholders' equity and the Statement of Cash Flows.
Figure 11-1 shows how these statements are interconnected across time. A Statement
of Financial Position reports on a company's financial position at a point in time. The
Statement of Comprehensive Income,
Statement of Stockholders' Equity and the Statement of Cash Flows report on
performance over a period of time.
The three statements in the middle of Figure 11-1 link the statement of financial
position from the beginning to the end of the period.

Figure 11-1. Financial Statement Links across Time

LINKAGE OF FINANCIAL STATEMENTS

The four financial statements are linked with each other and linked across time. This
linkage is also known as articulation. The succeeding section demonstrates the
articulation of financial statements using Orange Inc.
The statement of financial position and statement of comprehensive income are
linked via retained earnings. Retained earnings are updated each period and reflect
cumulative income that has not yet been distributed to shareholders. Figure 11-2
shows Orange Inc. retained earnings reconciliation for 2014.
ORANGE INC.
Retained Earnings Reconciliation
For Year Ended September 30, 2014
(pesos in millions)

Retained earnings, September 30, 2013 P5.607

Add: Net Income 3.496
Less: Dividends _______(0)
Other adjustments ____(.002)
Retained earnings, September 30, 2014 P9.101

Figure 11-2. Retained Earnings Reconciliation

In the absence of transactions with stockholders (e.g., stock issuances, repurchase
and dividend payments), the change in stockholders' equity equals income or loss for
the period. The income statement, thus, measures the change in company value as
measured in accordance with financial reporting standards. This is not necessarily
company value as measured by the market. Of course, all value-relevant items
eventually find their way into the income statement. So, from a long-term
perspective, the income statement does measure change in company value. This is
why stock prices react to reported income and to analysts' expectations about future
income.
Orange Inc. begins the fiscal year 2013-2014 with assets of P17.205 million,
consisting of cash for P6.392 million and noncash assets for P10.813 million. These
investments are financed with P7.221 million from nonowners and P9.984 million
from shareholders. The owner financing consists of contributed capital of P4.355
million, retained earnings of P5.607 million and other stockholders' equity of P22
million.
Figure 11-3 shows statement of financial position at the beginning and end of
Orange Inc. The statement of cash flows explains how operating, investing and
financing activities increase the cash balance by P2.960 million from P6.392 million
at the beginning of the year to P9.352 million at year-end.
Orange Inc.'s P3.496 million net income reported on the income statement is also
carried over to the statement of shareholders' equity. The net income explains nearly
all of the change in retained earnings reported in the statement of shareholders equity
because Orange Inc. paid no dividends in that year (other adjustments reduced
retained earnings by P.002 million).
There is an order to financial statement preparation. First, a company prepares its
income statement using the statement of comprehensive income accounts. It then
uses the net income number and dividend information to update the retained earnings
account. Second, it prepares the statement of financial position using the updated
retained earnings account along with the remaining statement of financial position
accounts from the trial balance. Third, it prepares the statement of stockholders'
equity. Fourth, it prepares the statement of cash flows using information from the
cash accounts and other sources.
Statement of Financial Position
September 30, 2014 & 2013
(pesos in millions)

2014 2013
Assets
Cash 9.352 6.392
Noncash Assets _15.995_ _10.813_
Total Assets 25.347 17.205

Liabilities & Owners Equity

Total Liabilities 10.815 7.221
Owners’ Equity
Contributed Capital 5.368 4.355
Retained Earnings 9.101 5.607
Other Stockholder’s Equity _0.063_ _0.022_
Liabilities and Owners Equity 25.347 17.205
 Statement of Comprehensive Income
For the Year Ended September 30, 2014
(pesos in millions)

Revenues 24.006
Expenses _(20.510)_
Net Earnings _3.496_

Statement of Cash Flow

For the Year Ended September 30, 2014
(pesos in millions)

Operating Cash Flows 5.470

Investing Cash Flows 3.249
Financing Cash Flows _0.739_
Net Change in Cash 2.960

Cash balance, Sept. 30, 2013 _6.392_

Cash balance, Sept. 30, 2014 _9.352_

Statement of Stockholder’s Equity

For the Year Ended September 30, 2014
(pesos in millions)

Contributed Capital, Sept. 30, 2013 4.355

Stock Issuance _1.013_
Contributed Capital, Sept. 30, 2014 _5.368_

Retained Earnings, Sept. 30, 2013 5.607

Net Income 3.496
Less: Dividends -
Less: Other Adjustments _0.002_
Retained Earnings, Sept. 30, 2014 _9.101_

Other Stockholders’ Equity, Sept 30, 2013 0.022

Other Changes in Equity _0.041_
Other Stockholders’ Equity, Sept 30, 2014 _0.063_
 1. Owner financing. It can raise money from shareholders.
2. Nonowner financing. It can also raise money from banks or other creditors
and suppliers.
This means that both owners and nonowners hold claims on the company assets.
Owner claims on assets are referred to as Equity, and nonowner claims are referred
to as Liabilities (or debt). Since all financing must be invested in something, we
obtain the following basic relation: (investing = financing). This equality is called
the accounting equation which follows: (assets = liabilities + owner's equity).

Financial statement titles sometimes begin with word consolidated. This means that
the financial statement includes a parent company and one or more subsidiaries,
companies that the parent company owns. For Blue Company, other equity includes
accumulated other comprehensive income and minority interests.
Investing Activities
Statement of financial position is organized like the accounting equation. Investing
activities are represented by the company's assets. These assets are financed by a
combination of nonowner financing (liabilities) and owner financing (equity).

Financing Activities
Assets must be paid for, and funding is provided by a combination of owner and
nonowner financing. Owner (or equity) financing includes resources contributed to
the company by its owners along with any profit retained by the company.
Nonowner (creditor or debit) financing is borrowed money. We distinguish between
these two financing sources for a reason: borrowed money entails a legal obligation
to repay amounts owed, and failure to do so can result in severe consequences for the
borrower. Equity financing entails no such obligation for repayment.
Some questions that a reader of the Statement of Financial Position of Blue
Company might have at this early stage are:
 Blue Company reports P88.658 million of cash on its 2014 statement of
financial position, which is 16% of total assets. Many investment-type
companies such as Blue Company and high-tech companies such as Cisco
Systems carry high levels of cash. Why is that? Is there a cost to holding too
much cash? Is it costly to carry too little cash?
 The relative proportion of short-term and long-term assets is largely dictated
by companies' business models. Why is this the case? Why is the
composition of assets on statement of financial position for companies in the
same industry similar? By what degree can a company's asset composition
safely deviate from industry norms?
 What are the trade-offs in financing a company by owner versus nonowner
financing? If nonowner financing is less costly, why don't we see companies
financed entirely with borrowed money?
 How do shareholders influence the strategic direction of a company? How
can long-term creditors influence strategic direction?
 Most assets and liabilities are reported on the statement of financial position
at their acquisition price, called historical cost. Would reporting assets and
liabilities at fair values be more informative? What problems might fair-value
reporting cause?
Review the Blue Company Statement of Financial Position summarized in Figure
11-4 and think about these questions.
Working Capital
Current assets are often called working capital because these assets "turn over" that
is, they are used and then replaced throughout the year
Net working capital is the difference between current assets minus liabilities while
net operating working capital is the difference between current assets and non-
interest-bearing current liabilities.

STATEMENT OF COMPREHENSIVE INCOME

The statement of comprehensive income reports on a company's performance over a
period of time and lists amounts for revenues (also called sales), expenses and other
comprehensive income. Revenues less
expenses yield the bottom-line net income amount. Figure 11-5 shows the Blue
Company Statement of Comprehensive Income. Refer to its income statement to
verify the following: revenues P236.490 million; expenses = P210.064 million; and
net income = P26.426 million. Net income reflects the profit (also called earnings) to
owners for that specific period.

Manufacturing and merchandising companies typically include an additional

expense account, called cost of goods sold (or cost of sales), in the statement of
comprehensive income following revenues. It is also common to report a subtotal
called gross profit (or gross margin), which is revenues less cost of goods sold.
The company's remaining expenses are then reported below gross profit. This
income statement layout follows:
Operating Activities
Operating activities use company resources to produce, promote and sell its products
and services. These activities extend from input markets involving suppliers of
materials and labor to a company's output markets involving customers of products
and services. Input markets generate most expenses (or costs) such as inventory,
salaries, materials and logistics. Output markets generate revenues (or sales) to
customers. Output markets also generate some expenses such as marketing and
distributing products and services to customers. Net income arises when revenues
exceed expenses. A loss occurs when expenses exceed revenues.
Differences exist in the relative profitability of companies across industries.
Although effective management can increase the profitability of a company, business
models play a large part in determining company profitability.
The following questions might be considered regarding the Statement of
Comprehensive Income.
 Assume that a company sells a product to a customer who promises to pay in
30 days. Should the seller recognize the sale when it is made or when the
cash is collected?
 When a company purchases a long-term asset such as a building, its cost is
reported on the statement of financial position as an asset. Should a company,
instead record the cost of that building as an expense when it is acquired? If
not, how should a company report the cost of that asset over the course of its
useful life?
 Manufacturers and merchandisers report the cost of a product as an expense
when the product sale is recorded. How might we measure the costs of a
product that is sold by a merchandiser? By a manufacturer?
 If an asset, such as a building, increases in value that increase is not reported
as income until the building is sold, if ever. What concerns arise if we record
increases in asset values as part of income, when measurement of that
increase is based on appraised values?
  Employees commonly earn wages that are yet to be paid at the end of a
particular period. Should their wages be recognized as an expense in the
period that the work is performed, or when the wages are paid?
 Companies are not allowed to report profit on transactions relating to their
own stock. That is, they do not report income when stock is sold, nor do they
report and expense when dividends are paid to shareholders. Why is this the
case?
Review the Blue Company Statement of Comprehensive Income summarized in
Figure 11-5 and think about these questions.

STATEMENT OF STOCKHOLDERS' EQUITY

The statement of stockholders' equity reports on changes in key types of equity over
a period of time. For each type of equity, the statement reports the beginning
balance, a summary of the activity in the account during the year and the ending
balance.
Blue Company
Statement of Stockholders’ Equity
For Year Ended December 31, 2014
(Pesos in Millions)

Contribute Retained Other Equity Total

d Capital Earnings

December 31, 2013 P 53,060 P 117,824 P 50,478 P 221,362

Stock Issuance 860 860
(Repurchase)
Net Income (Less) 26,426 26,426
Dividends (0) (0)
Other ________ __56__ __(1,902)__ _(1,846)_
December 31, 2014 P 53,920 P 114,306 P 48,576 P 246,802

Figure 11-6. Statement of Stockholders' Equity

Contributed capital represents the cash that the company received from the sale of
stock to stockholders (also called shareholders), less any funds expended for the
repurchase of stock. Retained earnings (also called earned capital or reinvested
capital) represent the cumulative total amount of income that the company has
earned and that has been retained in the business and not distributed to shareholders
in the form of dividends. The change in retained earnings links consecutive
statement of financial position via the income statement: Ending retained earnings =
Beginning retained earnings +Net income - Dividends. For Blue Company, its recent
year's retained earnings increase from P117.824 million to P144.306 million. This
increase of P26.482 million is explained by net income of P26.426 million, no
payment of dividends and P0.056million related to a mandated accounting change.

STATEMENT OF CASH FLOWS

The statement of cash flows reports the change (either an increase or decrease) in
company's cash balance over a period of time. The statement reports on cash inflows
and outflows from operating, investing and financing activities over a period of time.
Blue Company
Statement of Cash Flow
For the Year Ended December 31, 2014
(pesos in millions)

Operating Cash Flows P 12,550

Investing Cash Flows (13,428)
Financing Cash Flows _1,464_
Net Change in Cash 586

Cash balance, December. 30, 2013 _43,743_

Cash balance, December. 30, 2014 _P 44,329_

Figure 11-7. Statement of Cash Flows

Consider the following questions regarding the Statement of Cash Flows:

 What is the usefulness of the statement of cash flows? Do the statement of
financial position and income statement provide sufficient cash flow
information?
  What types of information are disclosed in the statement of cash flows and
why are they important?
 What kinds of activities are reported in each of the operating, investing and
financing sections of the statement of cash flows? How is this information
useful?
 Is it important for a company to report net cash inflows (positive amounts)
relating to operating activities over the longer term? What are the
implications if operating cash flows are negative for an extended period of
time?
 Why is it important to know the composition of a company's investment
activities? What kind of information might we look for? Are positive
investing cash flows favorable?
 Is it important to know the source of a company's financing activities? What
questions might that information help us answer?
 How might the composition of operating, investing and financing cash flows
change over a company's life cycle?
 Is the bottom-line increase in cash flow the key number? Why or why not?

ABC Company
Income Statement
For the year ended December 31, 2020

Sales xxxx
Cost of Sales xxxx
Gross Profit ____xxxx
Less: Operating Expenses xxxx
Salaries Expense xxxx
Rent Expense xxxx
Selling Expense xxxx
Depreciation Expense xxxx
Total Expense ____xxxx
Earnings before interest and taxes xxxx
Less: Interest Expense ____xxxx
Earning before taxes xxxx
Less: Income Tax _____xxxx
Net Income _____xxxx

*can be functional or natural

 ABC Company
Balance Sheet
As of December 31, 2020

Assets Notes
Current Assets
Cash and Cash Equivalents (3) XXXX
Inventories (4) XXXX
Trade and Other Receivables (5) XXXX
Prepayments _XXXX_
Total Current Assets XXXX

Non-Current Assets
Property, Plant and Equipment XXXX
Intangible Assets _XXXX_
Total Non-Current Asset _XXXX_
Total ASSETS XXXX

Liabilities
Current Liabilities
Trade and Other Payables XXXX
Current portion of long-term debt _XXXX_
Total Current Liabilities XXXX

Non-current Liabilities
Long-term Obligations XXXX
Bonds Payable _XXXX_
Total Non-Current Liabilities _XXXX_
Total Liabilities XXXX

Shareholders' Equity
Common Shares XXXX
Preference Shares XXXX
Retained Earnings _XXXX_
Total Equity XXXX
Total Liabilities and Equity XXX
 ABC Company
Cash Flow Statement
For the year ended December 31, 2020

Cash Flow from Operating Activities

Net Income
Depreciation XXXX
Increase/Decrease in Inventories XXXX
Increase/Decrease in Account Receivable XXXX
Increase/Decrease in Account Payable XXXX
Net Cash provided by Operating Activities XXXX

Cash Flow from Investing Activities

Increase in Property, Plant and Equipment XXXX
Proceeds from sale of Property, Plant and Equipment _XXXX_
Net Cash provided by Investing Activities _XXXX_

Cash Flow from Financing Activities

Increase/Decrease in Non-Current Liabilities XXXX
Issuance of Shares XXXX
Payment of Dividends XXXX
Net Cash provided by Financing Activities XXXX
Net Change in Cash XXXX
Add: Cash and Cash Equivalents, beginning XXXX
Total Liabilities and Equity _XXXX_

Note: Reconciling Accrual Basis of Accounting

ABC Company
Cash Flow Statement
For the year ended December 31, 2020

Cash Flow from Operating Activities

Cash Receipts from Customers
Cash Paid to Suppliers XXXX
Cash Paid to Employees XXXX
Interest Paid XXXX
Income Taxes Paid XXXX
Net Cash provided by Operating Activities XXXX
 Cash Flow from Investing Activities
Purchase of Property, Plant and Equipment XXXX
Cash Receipts from Sale of Property Plant and _XXXX_
Equipment
Net Cash provided by Investing Activities _XXXX_

Cash Flow from Financing Activities

Proceeds/Payments from Long Term Borrowings XXXX
Issuance of Shares XXXX
Dividends Paid XXXX
Net Cash provided by Financing Activities XXXX
Net Change in Cash _XXXX_

Cash at the Beginning of the Year XXXX

Cash at the End of the Year XXXX
Net Increase/Decrease in Cash _XXXX_

Note: Cash basis method is incorporated

ABC Company
Statement of Changes in Shareholders Equity
For the year ended September 30, 2020

Share Capital, Beginning XXXX

Add: Issued Share XXXX
Share Capital, Ending XXXX

Retained Earnings, Beginning XXXX

Add: Net Income XXXX
Less: Dividends Paid XXXX
Retained Earnings, Ending _XXXX_
Total Shareholders’ Equity _XXXX_
 ABC Company
Notes to Financial Statement
For the year ended December 31, 2020

Note 1: Company Profile

Note 2: Subscription of Shares

Note 3: Cash and Cash Equivalents XXXX

Cash on Hand XXXX
Cash in Bank XXXX
Petty Cash Fund XXXX
Marketable Securities XXXX
Total XXXX

Note 4: Inventories
Raw Materials XXXX
Work in Process XXXX
Finish Goods _XXXX_
Total XXXX

Note 5: Trade and Other Receivable

Account Receivable
Other Receivable XXXX
Less: Allowance for Doubtful Accounts _XXXX_
Total XXXX

Note 6: Property, Plant and Equipment

Land XXXX
Building and Equipment XXXX
Less: Accumulated Depreciation _XXXX_
Total XXXX

Note 7: Trade and Other Payables

Notes Payable XXXX
Accounts Payables XXXX
Salaries Payables XXXX
Interest Payables XXXX
Income Tax Payables XXXX
Total XXXX
Schedule 1: Net Sales
Cash Sales XXXX
Credit Sales XXXX
Less: Sales Discount, Returns, and
Allowances XXXX
Total XXXX

Schedule 2: Cost of Sales

WIP - beg XXXX
Direct Materials Cost XXXX
Direct Labor Cost XXXX
Factory Overhead XXXX
Total Manufacturing Cost XXXX
Less; WIP – end XXXX
Cost of Goods Manufactured XXXX
Add: Finished Goods - beg XXXX
Total Goods Available for Sale XXXX
Less: Finished Goods - end XXXX
Total XXXX

Schedule 3: Operating Expenses

Administrative Expenses XXXX
Selling Expenses XXXX
Other Expenses XXXX
Total XXXX