BALABA, JHON PAUL J.
SBAC 3B
CHAPTER 1- FINANCIAL STATEMENTS
Financial Statements
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The means by which the information accumulated and processed in financial
accounting is periodically accumulated in the users.
Structured representation of the financial position and financial performance of
an entity.
General Purpose
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to meet the need of external users.
Components of financial statements
1.
2.
3.
4.
5.
6.
Statement of financial position
Income statement
Statement of comprehensive income
Statement of changes in equity
Statement of cash flows
Notes
Objective of a financial statements
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To provide information about the financial position, financial performance and
cash flows of an entity that is useful to wide range of users in making economic
decisions.
To meet this objective, financial statements provide information about the
following:
a. Assets
b. Liabilities
c. Equity
d. Income and expenses, including gains and losses
e. Contributions by and distributions to owners in their capacity as
f. Cash flows
Financial position- Liquidity and solvency
Financial performance- profitability
Financial reporting
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The provision of financial information about an entity to external users that is
useful to them in making economic decisions.
assessing the effectiveness of the entity’s management.
Objective of financial reporting
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
To provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions about
providing resources to the entity.
Primary users have the most critical and immediate need for information in
financial reports.
Specific objectives of financial reporting
a. To provide information useful in making investing and credit decisions about
providing resources to the entity.
b. To provide information useful in assessing the cash flow prospects of the entity.
c. To provide information about entity resources, claims and changes in resources
and claims.
Limitations of financial reporting
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Do not and cannot provide all of the information that existing and potential
investors, lenders and other creditors need.
Not designed to show the value of a reporting entity but these reports provide
information to help the primary users estimate the value of the entity.
Intended to provide common information to users and cannot accommodate
every specific request for information.
Baes on estimate and judgement rather than exact depiction.
Responsibility for financial statements
 The management of an entity has the primary responsibility for the preparation
and presentation of financial statements.
General features of financial statements
1. Fair presentation and compliance with PFRS
2. Going concern
3. Accrual basis
4. Materiality and aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation
Fair presentation
 Financial statements shall present fairly the financial position, financial
performance and cash flows of an entity.
 Prepared in accordance with the Philippine financial reporting standards which
represent the GAAP in the Philippines.
 Fair presentation requires an entity:
o To select and apply accounting policies in accordance with PFRS.
o To present information, including accounting policies, in a manner that
provides relevant and faithful represented financial information.
o To provide additional discloses necessary for the users to understand the
entity’s financial statements.
Going Concern
 Also known as continuity assumption
 Means that the accounting entity is vied as continuing in operation indefinitely in
the absence of evidence to the contrary.
Accrual basis
 An entity shall prepare the financial statements, using the accrual basis of
accounting except for cash flow information.
 Recognized when they occur and not as cash or cash equivalent is received or
paid, and they are recorded and reported in the financial statements of the
periods to which they relate.
Materiality and aggregation
 Material if knowledge of it would affect the decision of the informed users of the
FS.
 Factors of materiality:
o Relative size of the item
o Nature of the item
Offsetting
 Assets and liabilities, and income and expenses, when material, shall not be
offset against each other. Offsetting may be done when it is required or permitted
by another PFRS.
Frequency of reporting
 An entity shall present a complete set of financial statements at least annually.
Comparable information
 When permitted or required otherwise by standard, an entity shall disclose
comparative information in respect of the previous period for all amounts
reported in the current period’s financial statements.
Consistency of Presentation
 Financial statements shall be clearly identified and distinguished from other
information in the same published document each component shall be clearly
identified.
Following information shall be prominently displayed:
 The name of the reporting entity
 Whether the FS cover the individual entity / group of entities
 The end of the reporting period / period covered by the FS or notes
 The presentation currency.
 The level of rounding used in the amounts in the FS