Financial Statements
Basis for the formation of
financial statements
Bookkeeping and journal
entries
Daily business
operations
System of
accounting
accounts
Financial
statements
Accounting summary and
balancing
1
Classification of
accounts by economic
content
Basis for the formation of
financial statements
- Asset accounts
Balance sheet
- Liability accounts
- Revenue accounts
Income
statement
- Expense accounts
Balance Sheet
• The balance sheet is a financial statement
that reflects the overall situation of a
business's assets and the sources of capital
to finance those assets at a specific point in
time
Two-sided structure
Left: asset situation
Right: funding sources
2
Balance Sheet
Assets
Current Assets
Liabilites & Owners’ Equity
409
Current Liabilities
253
Long-term Debt
68
Owners’ Equity
513
Fixed Assets
425
Total assets
834 Total Liabilites & Owners’ Equity
834
Total assets = Total liabilities & owners’ equity
Example
Firm A – 31/12/N – Unit: 1,000 VND
Cash on hand
40,000
Short-term loan
600,000
Cash in bank
800,000
Trade payables
200,000
Raw materials
500,000
Other payables
50,000
Instruments &
tools
60,000
Contributed
capital
Finished goods
100,000
Investment and
development
fund
Tangible fixed
assets
5,000,000
5,600,000
50,000
3
Balance sheet
Firm A - 31/12/N - Unit: 1,000 VND
Assets
Amount
Current Assets
- Cash on hand
- Cash in bank
- Raw materials
- Instruments & tools
- Finished goods
Fixed Assets
- Tangible fixed assets
Total assets
40,000
800,000
500,000
60,000
100,000
Liabilities & Owners’
Equity
Current Liabilities
- Short-term loan
- Trade payables
- Other payables
Owners’ Equity
- Contributed capital
- Investment and
5,000,000 development fund
6,500,000 Total Liabilities &
Owners’ Equity
Amount
600,000
200,000
50,000
5,600,000
50,000
6,500,000
Balance sheet
Impact of business operations
 4 types of effects:
• Increase in an asset - decrease in
another asset
• Increase in a liability - decrease in
another liability
• Increase in assets - increase in
liabilities
• Decrease in assets - decrease in
liabilities
4
Balance sheet
Impact of business operations
1/ Increase in an asset - decrease in another
asset
Example: withdrawing bank deposit to put
into cash fund 8,000
Cash on hand: increase
(40,000+8,000=48,000)
Cash in bank: decrease (800,0008,000=792,000)
Balance sheet
Impact of business operations
Debit
Account 111
- CoH
Credit
Debit
Account 112 CiB
OB: 40,000
8,000
OB: 800,000
CB: 48,000
CB: 792,000
Credit
8,000
5
Balance sheet
Impact of business operations
Assets
Current Assets
- Cash on hand
- Cash in bank
- Raw materials
- Instruments & tools
- Finished goods
Fixed Assets
- Tangible fixed assets
Total assets
Amount
48,000
792,000
500,000
60,000
100,000
Liabilities & Owners’
Equity
Current Liabilities
- Short-term loan
- Trade payables
- Other payables
Owners’ Equity
- Contributed capital
- Investment and
5,000,000 development fund
6,500,000 Total Liabilities &
Owners’ Equity
Amount
600,000
200,000
50,000
5,600,000
50,000
6,500,000
Balance sheet
Impact of business operations
2/ Increase in a liability - decrease in another
liability
Example: taking out a short term loan to pay
off trade payables 100,000
Short term loan: increase (600,000+
100,000=700,000)
Trade payables: decrease (200,000100,000=100,000)
6
Balance sheet
Impact of business operations
Debit
Acc. 311 - BL
Credit
OB: 600,000
100,000
Debit
Acc. 331 - TP
Credit
OB: 200,000
100,000
CB: 700,000
CB: 100,000
Balance sheet
Impact of business operations
Assets
Current Assets
- Cash on hand
- Cash in bank
- Raw materials
- Instruments & tools
- Finished goods
Fixed Assets
- Tangible fixed assets
Total assets
Amount
48,000
792,000
500,000
60,000
100,000
Liabilities & Owners’
Equity
Current Liabilities
- Short-term loan
- Trade payables
- Other payables
Owners’ Equity
- Contributed capital
- Investment and
5,000,000 development fund
6,500,000 Total Liabilities &
Owners’ Equity
Amount
700,000
100,000
50,000
5,600,000
50,000
6,500,000
7
Balance sheet
Impact of business operations
3/ Increase in assets - increase in liabilities
Example: Taking out a long-term loan to buy
a tangible fixed asset worth 500,000
Long-term loan: 500,000
Tangible fixed asset: increase
(5,000,000+500,000=5,500,000)
Balance sheet
Impact of business operations
Debit
Acc. 211 - TFA
Credit
Debit
Acc. 341- LTL
Credit
SDĐK: 5,000,000
500,000
SDĐK: 0
500,000
SDCK: 5,500,000
SDCK: 500,000
8
Balance sheet
Impact of business operations
Assets
Amount
Current Assets
- Cash on hand
- Cash in bank
- Raw materials
- Instruments & tools
- Finished goods
Liabilities & Owners’
Equity
Current Liabilities
- Short-term loan
- Trade payables
- Other payables
Long-term loan
Owners’ Equity
- Contributed capital
- Investment and
5,500,000 development fund
48,000
792,000
500,000
60,000
100,000
Fixed Assets
- Tangible fixed assets
Total assets
7,000,000 Total Liabilities &
Owners’ Equity
Amount
700,000
100,000
50,000
500,000
5,600,000
50,000
7,000,000
Balance sheet
Impact of business operations
4/ Decrease in assets - decrease in liabilities
Example: using cash on bank to pay other
payables of 20,000
Cash on bank : decrease (792,000-
20,000=772,000)
Other payables : decrease (50,000-
20,000=30,000)
9
Balance sheet
Impact of business operations
Debit
Acc. 112 - CoB
Credit
Debit
Acc. 338 - OP
OB: 800,000
Credit
OB: 50,000
8,000
20,000
20,000
CB: 772,000
CB: 30,000
Balance sheet
Impact of business operations
Assets
Current Assets
- Cash on hand
- Cash in bank
- Raw materials
- Instruments & tools
- Finished goods
Fixed Assets
- Tangible fixed assets
Total assets
Amount
Liabilities & Owners’
Equity
Current Liabilities
- Short-term loan
- Trade payables
- Other payables
Long-term loan
Owners’ Equity
- Contributed capital
- Investment and
5,500,000 development fund
48,000
772,000
500,000
60,000
100,000
6,980,000 Total Liabilities &
Owners’ Equity
Amount
700,000
100,000
30,000
500,000
5,600,000
50,000
6,980,000
10
Income Statement
• Income statement is a summary of a
company's revenues, expenses and
profit/loss over a specific period of time.
Profit/loss = revenues – expenses
Income Statement
Classification of Revenues and
Expenses
• Operating revenues and expenses
• Financial revenues and expenses
• Extraordinary revenues and expenses
11
Statement of Cash Flows
Income # Cash Flow. 3 reasons:
– Noncash Items, example: depreciation
– Realization principle
– Matching principle
Realization principle
(Example)
Production
Goods sold
1
2
Payment
3
Revenue recognition
Period
2
3
Sales
100
0
Change in accounts receivable
100
-100
Cash flow
0
100
12
Matching Principle
Production
Cost
60 $
(Example)
Inventory
Goods sold
1
2
Revenue recognition
Period
1
2
COGS
0
60
Change in inventory
60
-60
Cash flow
60
0
13