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Basic Elements of Financial Statements In Norm NIF A5 their basic…
Basic Elements of Financial Statements
In Norm NIF A5 their basic composition is explained.
Objective:
Describe the basis elements that must be on Financial Statements for unifying the criteria for analyzing and interpreting the financial information.
Balance Sheet or Financial Position Statement
Balance Sheets must be done
at the end of certain accounting period
, by
profit and non-profit entities.
It registers all the
Assets, Liabilities, and Equity
that belong to the entity, this document shows the "balance" that exits between these three things.
Assets = Liabilities + Equity
Assets:
Resources owned or control by the entity.
Liabilities:
External debts the entity has
Equity:
Owner's investment (capital stock and earnings).
Assets:
Resources owned and controlled by the entity, these are measured in monetary terms and help to provide future economic benefits.
Types of Assets:
Right to receive cash or equivalents
Cash and equivalents
Goods for sale or goods that can be changed for their sale.
Right to receive goods or services
Asset sub-categories in Balance Sheets:
Short term or Current assets:
All the assets that will be received in less (or equal to) 12 moths.
E.g.
Cash or equivalents and account receivable like clients, pre-paid services, goods or inventories.
Long Term Assets:
All assets that will be received in a period longer than 12 months. They are
tangible,
like properties, land and equipment (PP&E) or can be
intangible,
like patents, permits, trademarks, franchises, etc...
Equity:
The residual value of the assets once liabilities have been covered. It represents the entity's obligations with owner's and stock-holders (retribution of their investment).
Contributed Equity:
Investments that are directly made (internal financing).
Earned Equity:
Earnings generated in the entity's operation to which the owner's have claim.
Scope:
These following rules are aplicable to all the entities that follow NIF A3, which defines the purpose and necessities for users of Financial Statements.
Liabilities:
Current obligations of the entity that cannot be negotiated and represent an eventual decrease on future benefits.
Types of Liabilities:
1.
Obligations to make certain transaction of money or equivalents.
2.
Obligation to transfer goods or services.
3.
Obligation to transfer financial instruments made by the entity.
Liability sub-categories for Balance Sheet Reports:
Short Term (current) Liabilities:
Those that must be covered in 12 or less than 12 months. Can be to suppliers, creditors, everything that has not been paid.
Long Term Liability:
Those that must be covered in more than 12 moths, like mortgage, bond, obligations, etc...
Income statements (P&L):
This document must be prepared at the end of the accounting period to show the result of the entity's operations. It compares the revenue earned with the expenses incurred which determines profit or loss. Income Statements require detailed and classified presentation of Revenue and Expense Accounts.
REVENUE EARNED
(minus) - EXPENSES INCURRED
(equal) = PROFIT OR LOSS
Revenue:
The increase of assets in the form of cash.
Decrease in liabilities and asset enhancements.
Resources generated during the operations of the entity with a favorable impacto overall.
Regular operations:
Sales, any product or service.
Other operations:
Operations that don't derive from the entity's offerings.
Costs and Expenses:
They decrease assets or increase liabilities in an entity during an accounting period. Consequence of the entity's efforts to generate revenue. They might have a negative impact on profits.
Cost of Goods and Services Sold:
usage or consumption of assets.
Operating Expenses:
Assets used to operate a business such as administrative and marketing operations.
Financing Expenses:
Interes or commissions incurred.
Cash Flow Statement:
How cash is generated and used during an accounting period. It analyzes cash received and cash reimbursed. They show cash movements in three main categories:
Financing Activities
Investing activities
Operating activities