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Suneth Pahalavithana

BTEC HND in Quantity Surveying


Financial Management
LOC 2.3 - Explain Financial Reporting Methods.

Financial Reporting
Methods
Internal
Reporting
Made for internal
parties.
Confidential report.
No legal
requirement.
Detailed report.
Flexible in
preparation.

External
Reporting
Made for external
parties.
Public report.
Legally bound.
Summarized report.
Inflexible in
preparation.

What are the financial


reporting method?
Income Statement
Owners Equity
Statement
Statement of Cash Flow
Balance Sheet

Income Statement

Reports Revenues and expenses


for a specific period of time.
Incomes and expenses consider
for the period, not the received
and paid. (Accrual Basis)
Revenue > Expenses === Net
Income
Expenses > Revenue === Net
Loss
Consist

Revenue
Cost of sales
Admin cost
Distribution cost
Finance cost
Finance Income
Tax

Buddys Repair Shop Income


Statement
For the month ended 30th of April
Revenue
Service Revenue
Expenses
Salary expense
Rent expense
Advertising expense
Total expenses
Net Income

$ 5850

$ 2000
$ 400
$ 250
$2650
$3200

Owners Equity Statement


Buddys Repair Shop Income Statement
For the month ended 30th of April

Revenue
Service Revenue
5850
Expenses
Salary expense
2000
Rent expense
400
Advertising expense
250
Total expenses
$2650
Net Income
$3200

Buddys Owners Equity Statement


For the month ended 30th of April

Capital at 1st of April


$0
Investments
$ 10000
Net Income
$ 3200

$
$

$ 13200

Drawings
($ 1000)
Capital at 30th of April
$ 12200

Explains the reasons for increases or decreases of owners


equity net income, capital contributions, capital distributions
etc

Balance Sheet
Buddys Owners Balance Sheet

Buddys Owners Equity Statement

As at 30th of April

For the month ended 30th of April

Capital at 1st of April


Investments
Net Income

$0
$ 10000
$ 3200
$

13200

Drawings
1000)
Capital at 30th of April
12200

($
$

Assets
Cash
Account Receivable
Equipments
Total Assets
Liabilities
Accounts Payable
Equity
Buddys capital

$ 6820
$ 630
$ 5000
$ 12450
$ 250

$ 12200

Balance Sheet cont

Reports a financial situation for a


particular moment of time.(has a
date on it)
Assets-Liabilities=Equity
Consist
Cash or cash equivalents
Inventories
Receivables
Property, Plant and
Equipments
Payables
Loan Interests
Unpaid wages
Bank Loans
Issued Capital
Retained Earnings

Main parts of balance sheet


Assets
Current Assets cash and
other assets that will
converted in to cash during
one operating cycle
Non Current Assets not
expected converted in to cash
during one operating cycle

Liabilities

Current Liabilities short term financial


obligations.
Non Current Liabilities - long term
financial obligations.

Owners Equity

Statement of Cash Flow


Buddys Owners Balance Sheet

Buddys Owners Cash Flow Statement

As at 30th of April

As at 30th of April

Assets
Cash
6820
Account Receivable
Equipments
5000
Total Assets
12450
Liabilities
Accounts Payable
Equity
Buddys capital
12200

$
$ 630
$
$

$ 250

Cash Flow from operation Activities


Cash receipts from revenues
Cash paid from expenses
Cash provided by operations

$ 5220
($ 2400 )
$ 2820

Cash Flow from investing Activities


Purchase of equipments

($5000 )

Cash Flow from financing Activities


Investments by owners
Drawings by owners
Cash provided by financing activities

$ 10000
($ 1000)
$9000

Net Increase in Cash


6820
Cash balance, 1st of April
Cash balance, 30th of April
6820

$
$0
$

Statement of Cash Flow


cont

Historical record of sources and uses of funds.


Information for a specific period of time.
Main parts
Cash from operating activities
Cash from investing activities
Cash from financial activities
It shows
Where did the cash come?
What was cash used for?
What was the change in cash balance?

Conclusions
All business owners should have a basic set of
financial statements at their organization and they
should know how to analyze and interpret them.
Measure financial conditions and the financial
performance of the business.
Facilitates rational decision making.
Compliance with the legal requirements.
Making information available to various groups and
users at a particular time.
Helps to planning and control business operation.