Business owners and managers need to have up-to-date financial information to make the appropriate decisions about their future operations. The financial information of a business is registered in the G / L accounts. However, transactions that occur during the fiscal period alter the balances of these accounts. Changes must be reported periodically in the financial statements.
In the complex world of business, today characterized by the globalization process in companies, financial information plays a very important role in producing essential data for the administration and development of the economic system.
Accounting is a discipline of human knowledge that allows preparing general information about the economic entity. This information is shown in the financial statements. The expression "financial statements" includes: Balance sheet, profit and loss statement, statement of changes in equity, statement of cash flows (EFE), notes, other statements and explanatory material, which is identified as part of the statements financial.
The fundamental characteristics that financial information must have are usefulness and reliability.
Profit, as a characteristic of financial information, is the quality of adapting it to the purpose of users, among which are shareholders, investors, workers, suppliers, creditors, the government and, in general, the society.
The reliability of the financial statements reflects the veracity of what happens in the company.
FINANCIAL STATEMENTS
Financial statements that present in constant pesos the resources generated or profits from the operation, the main changes that have occurred in the financial structure of the entity and their final reflection in cash and temporary investments over a given period. The expression "constant pesos" represents pesos of purchasing power at the balance sheet date (last reported year in the case of comparative financial statements).
OBJECTIVE
The objective of the Financial Statements of a company is to provide information about the financial position, operation and changes in it, useful for a wide variety of users in making economic decisions.
TYPES OF FINANCIAL STATEMENTS.
The basic financial statements are: Balance Sheet if it is at the end of a fiscal year and Trial or Situation Balance when they are monthly; Income Statement or Profit and Loss Statement that are cumulative monthly until the end of the year; Statement of changes in Equity; Cash Flow Statement: and the Notes to the Financial Statements, referred to the end of the year.
Regardless of the elements and divisions of the first two statements, it is important to highlight the presentation and valuation rules that must be considered when preparing them, which are included in series C of the accounting principles, which includes a bulletin for each item.
Some of the rules are as follows:
1.- When the balance of the other bank account is creditor at the moment of presenting the balance, said balance must be reclassified against the liability that originated it.
2.- In the event that you have an account receivable and another one payable on behalf of the same person, this balance must be subtracted and only show the amount corresponding to the account with the highest balance, obviously due to the difference.
3.- The part of the share capital that has not yet been exhibited will be represented by a balance in the shareholder account, which must not be presented as an asset account, but must be shown within stockholders' equity, subtracting the balance of share capital.
4.- The balances of the inventories must be reflected in the current assets after the accounts receivable.
5.- In the case of a liability that has a long-term maturity, but in which a monthly payment plan has been established to liquidate it, the part of that debt that will be liquidated in a period not exceeding one year it must be considered as a short-term liability.
CONTENT AND USE OF THE FINANCIAL STATEMENTS.
The financial statements provide information on the financial position, changes and operations of the company. The structure of the Trial Balance contains the assets (assets of the company), the liabilities (obligations with third parties), and the capital (participation of the owners or shareholders). In addition, the liquidity situation is determined (cash availability in the near future after deducting the financial commitments for the period), solvency (long-term cash availability to meet the commitments at maturity), and the profitability of assets and of capital.
On the other hand, the income statement presents information regarding the development of the company, and measures the operation of the same through the generation of profits or returns. The main elements for such measurement are the income and costs or expenses, through which the company's ability to generate cash flows and measure the effectiveness with which it can be used is determined. In the same way, you can evaluate the administrative management, its degree of responsibility and have elements of judgment for decision making, either to maintain or sell your investment and confirm or replace the administration.
The Statement of Changes in Equity, for its part, shows the movements that have occurred during an exercise, in the patrimonial accounts, such as in the capital or contributions of the owners or shareholders; likewise, it shows the retained earnings recorded in capital reserves or pending distribution and reflects the distribution of dividends; The shareholders' disposition not to distribute profits is in order to strengthen their company. In the Cash Flow, information is provided on the ability to generate cash flows from operations, investment activities and financing; Through this, the ability of a company to pay its commitments can be analyzed: salaries, suppliers, creditors and dividends to its owners.It is also a tool that allows determining financing needs.
The Notes to the Financial Statements, on the other hand, are supplementary information regarding general company data, the accounting principles and policies adopted, clarifications about the risks, uncertainties and price variations that affect the company and about other resources and obligations not recognized in the Balance Sheet; In addition, it contains references to the country's economic data.
- Some financial statements
PROJECTED FINANCIAL STATEMENT
Financial statement at a future date or period, based on estimated calculations of transactions that have not yet been performed; it is an estimated statement that frequently accompanies a budget; a pro-forma state.
FINANCIALLY AUDITED STATES
They are those who have gone through a process of reviewing and verifying information; This examination is carried out by independent public accountants who finally express an opinion about the reasonableness of the financial situation, results of operations and flow of funds that the company presents in its financial statements for a particular year.
CONSOLIDATED FINANCIAL STATEMENTS
Those that are published by legally independent companies that show financial position and profit, just as if the companies' operations were a single legal entity.
CLASSES OF FINANCIAL STATEMENTS
- Balance Sheet, Income Statement or Operations Statement of Changes in Financial Position Statement of Changes in Stockholders' Equity
BALANCE SHEET
Accounting document that reflects the financial situation of a company at a moment in time. It consists of two parts, active and passive. The asset shows the assets of the company, while the liability details its financial origin. Legislation requires that this document be a true image of the company's equity status.
ACTIVE
They are the valuables that the business owns. The assets and rights that the microenterprise has to operate.
PASSIVE
They are the obligations that the company has and that in a term must pay with money, products or services.
CAPITAL
They are the company's resources, which include the employer's contributions, plus the profits or less the losses suffered by the initial contribution. To determine the existing capital, that is, the net equity of the company, the total obligations (LIABILITIES) are subtracted from the total resources (ASSETS).
ASSETS (Resources) - LIABILITIES (Obligations)
=
CAPITAL (Equity)
Let's see in the following figures how the formula applies:
P = Liabilities ($ 40433) C = Capital ($ 52018)
A (Active) = P + C
A = $ 40433 + $ 52018
Assets = $ 92451
If we do not know the total liabilities, we can calculate:
P = A - C
P = $ 92451 - $ 40433 = $ 52018
The owner of the company «La Japonesa» has an asset of $ 8000 and has a debt of $ 2550 as of April 30, 1997. So, to find out what is his own capital working, he does the following:
C = A - P
C = $ 8000 - $ 2550
C = $ 5450
That is, capital is what is obtained by subtracting the amount of liabilities (debts) from the value of all assets (resources).
The Balance Sheet summarizes the accounting information that results from the economic transactions carried out on a specific date.
The balance of «La Japonesa» as of April 30, 1997 would be:
THE JAPANESE
BALANCE SHEET AS OF 04/31/97
| ACTIVE | $ 8000 | PASSIVE | $ 2550 |
| CAPITAL | $ 5450 | ||
| Total Assets | $ 8000 | Total Liabilities and Capital | $ 8000 |
Now we will see in detail the components:
ACTIVE
Assets are grouped according to their degree of availability to be converted into cash (liquidity).
Current Assets.
They are the securities that have immediate liquidity or that can be converted into cash, while the business is running.
- Cash on hand. Money in banks. Investments in securities of immediate realization. Accounts receivable (customers). Inventories (on deposit) of raw materials, production in process and finished product.
Fixed assets.
They are assets that have been acquired for use in the activities of the business and that are necessary to transform, sell and distribute the products. These assets suffer value losses due to the simple passage of time, their use or technological obsolescence.
- The land (constitutes an exception, since it does not lose value with the passage of time).Buildings. Machinery and equipment. Office equipment. Transport equipment.
Other assets.
They are those payments that the company makes in advance for the provision of a service or for the acquisition of a good that is not used immediately but in the course of a certain time and that finally become EXPENSES affecting the results of the company. For example:
- Pre-paid rentals Patents and brands Insurance premiums
PASSIVE
Liabilities are classified according to the degree of enforceability in which they must be covered.
Current Liabilities.
They are the debts that the company has to pay in a period of less than one year. The list of current liabilities is usually made according to the enforceability of those debts.
- Suppliers Short-term bank loans Taxes payable Miscellaneous creditors Documents payable
Long-term liabilities.
They are those debts that must be paid in a period greater than one year.
- Long-term obligations with banks Documents to pay Others.
Other passives.
It includes the obligations derived from early collections for the delivery of products or the provision of services.
- Advance payments from clients. Rentals charged in advance. Others.
It is an accounting document that reflects the financial situation of an economic entity, whether of a public or private organization, on a given date and that allows a comparative analysis to be made of it; includes assets, liabilities and stockholders' equity.
It is formulated according to a standard format and criteria so that the basic information of the company can be obtained uniformly, such as: financial position, profit capacity and funding sources.
FEATURES
- It is a financial statement It shows the assets, liabilities and stockholders' equity of a company, in which its owner can be a natural or legal person.The information it provides corresponds to a fixed date (static) It is made based on the balance of the balance sheet accounts.
COMPARATIVE BALANCE SHEET
Financial statement in which the different elements that comprise it are compared in relation to one or more periods, in order to show the changes that have occurred in the financial position of a company and facilitate its analysis.
CONSOLIDATED BALANCE SHEET
It is one that shows the financial situation and results of operations of an entity made up of the holding company and its subsidiaries, as if they all constituted a single economic unit.
It is formulated by replacing the investment of the holder in shares of subsidiary companies, with their assets and liabilities, eliminating the balances and operations carried out between the different companies, as well as the profits not realized by the entity.
Other balance sheets:
ESTIMATED BALANCE SHEET
It is a financial statement prepared with preliminary data, which are usually subject to rectification.
PROFORMA BALANCE SHEET
Financial statement showing tentative amounts, prepared in order to show a proposal or probable future financial situation.
BALANCE SHEET PRESENTATION METHODS
The presentation of the different accounts that make up the balance can be done according to their increasing or decreasing liquidity order. The method is increasing when the assets with the highest liquidity or availability are presented first and then in other order of importance. The balance sheet is said to be classified in order of liquidity and decreasing enforceability, when fixed assets are presented first and finally, with that order being realized or current assets.
FINANCIAL OPERATIONAL BALANCE OF THE PUBLIC SECTOR
Statement showing the financial operations of income, expenses and deficit of the dependencies and entities of the Federal Public Sector deducted from the compensated operations carried out between them. The difference between total expenses and income generates the economic deficit or surplus.
BUDGETARY BALANCE
Balance that results from comparing the income and expenses of the Federal Government plus those of the parastatal entities of direct budgetary control.
PRIMARY BALANCE OF THE PUBLIC SECTOR
The primary balance is equal to the difference between the total income of the Public Sector and its total expenses, excluding interest. Because most of the interest payment for a fiscal year is determined by the accumulation of debt from previous years, the primary balance measures the effort made in the current period to adjust public finances.
STRUCTURE
THE HEADER IS INTEGRATED BY:
- Company name Denomination The date to which the information refers.
THE BODY IS INTEGRATED BY:
- Assets Liabilities Equity
THE FOOT IS INTEGRATED BY:
- Notes to the financial statements Memorandum account numbers and figures Name and signature of the person who prepares, audits or interprets it.
- Presentation of the body of the statement of financial position (balance sheet).
The body of a balance sheet can be presented in various forms, for example:
a) In the form of an account:
B) In the form of a report
| Assets | $ |
| -Passives | $ ___________________ |
| = Stockholders' equity | $ ___________________ |
Now the concepts that make up the body of the balance sheet (Assets, Liabilities and Stockholders' Equity) can be presented in different ways: for example:
Conventional presentation:
| Current assets $ __________
Fixed assets $ __________ Deferred asset $ __________ Sum: $ __________ |
PRACTICAL CASE
Mr. Eugenio Lloper, owner of a micro-company dedicated to the manufacture of ceramics, has the following data to prepare his balance as of May 31 of this year. Could you collaborate with Eugenio to prepare the Balance Sheet?
Data
| Concepts | $ |
| Cash balance | 1000 |
| Money in banks | 2126 |
| Providers | 1239 |
| Accounts receivable from clients | 34430 |
| Machinery and equipment | 21620 |
| Inventory | 14160 |
| Various creditors | 970 |
| Taxes to pay | 850 |
| Short-term bank obligations | 1897 |
| Land | 2426 |
| Building | 12188 |
| Long-term bank obligations | 24370 |
| Long-term accounts receivable | 3600 |
| Rentals charged in advance | 2800 |
| Transport equipment | 2729 |
| Insurance paid in advance | 658 |
| Rentals paid in advance | 376 |
| Other short-term liabilities | 400 |
| Social capital | 30000 |
| Earnings from previous years | 12654 |
| Income before taxes | 12339 |
CERAMIC FACTORY
BALANCE SHEET AS OF 05/31/97
| ACTIVE | LIABILITIES AND CAPITAL |
| Current Assets | Current Liabilities |
| Box | Providers |
| Banks | Various creditors |
| customers | Tax to pay |
| Inventories | Bank loans with term |
| Other liabilities c. term | |
| Total Current Assets | Total Current Liabilities |
| Fixed Assets | Long-term liabilities |
| Ground | Bank loans l. term |
| Building | Other obligations L. Term |
| Machinery and equipment | |
| Transport equipment | |
| Total Fixed Assets | Total Long Liabilities |
| Other assets | Other passives |
| Total Other Assets | Total Other Liabilities |
| TOTAL ASSETS | TOTAL LIABILITIES |
| TOTAL CAPITAL | |
| TOTAL LIABILITIES MORE CAPITAL |
CONCLUSIONS
From the work carried out by our team we can conclude despite the fact that there are several financial statements, the ones that stand out or stand out the most for their use are the Statement of Financial Position or Balance Sheet and the Statement of Income or Statement of Profit and Loss.
In this part of our work we focus on what is the Balance Sheet, it was understood that it consists of three main parts that are: heading, body and notes that have to be made.
From this the heading consists of the general data of the company of which said balance is, for its part the body consists of the information provided by the basic accounting equation, which is: Assets equals Liabilities plus Stockholders' Equity, and the final part of the balance serves to place the footnotes that are normally placed in an attached document due to their length.
BIBLIOGRAPHY
Consulted Internet Pages
members.tripod.com/aromaticas/Contabilidad.htm
212.73.32.210/hosting/000df/m-angel/manuales/EstadosFinancieros.htm
ELABORDED BY:
Edgar Alan Domínguez Avila
Ninth semester student of control and automation engineering at ESIME
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