Financial Statements

Statement Of Financial Position:

Definition: It presents in monetary terms the assets and liabilities of an entity on a particular date( a point of time)

Explanation: As per duality concept at any point of time a business entity, the liabilities of the business would be equal to its assets. An elaborate presentation of this equality(Liabilities= Assets) on a particular date is the statement of the financial position. The individual components of assets(fixed assets, investments, current assets, cash/ bank, etc.) as well as individual components of liabilities(owner’s capital, loans, current liabilities, etc.) and their monetary values are presented in this statement.

The Statement of Financial Performance :

Definition: It presents in monetary terms the results of the operations of the entity over a period.

Explanation: The goal of the entity is to generate adequate returns( difference of income and expenditure) for the owners’ of capital. The statement of financial performance shows the performance of the entity regarding – the income earned and the corresponding expenses incurred and the difference between the income and the expenses over a period

The Statement of Cash Flows:

Definition: The statement of cash flows shows the change in cash balance over a period in terms of the changes in individual items of assets and liabilities.

Explanation: We start with the equality> Liability= Assets. Both sides can be expanded to > Owner’s capital + Loan+ Current liabilities and provisions= Fixed assets + investments+ Current assets other than cash + Cash/ Bank. The difference of this equality at the end of the period and the start of the period can be written as

∆ Owner’s capital+∆ Loan+∆ Current liabilities and provisions=

∆Fixed assets +∆ investments+ ∆Current assets other than cash +∆ Cash/ Bank. ………… (1). where ∆ represents a change

This can be re- arranged as

∆ Cash/Bank=∆Owner’s capital+∆Loan+∆Current liabilities and provisions-∆Fixed assets-∆Investments- ∆Current assets other than cash…………..(1).

This is the mathematical representation of the cash flow statement;

The Statement of Changes in Equity ;

Definition: This statement presents the change in the component’s of owner’s capital over the reporting period , reconciling the opening and closing balances.

Explanation: The statement reflects 1) changes by way of transaction with share holders- issue/ buyback of new shares at face value or premium, payment of dividends, etc. and 2) changes by way of addition to capital by way of operating profits, profit from sale of investments, revaluation of fixed assets, etc.

Private Company:

Definition: A private company is a company owned and controlled by a very small number of share holders. Its shares are not offered for subscription to the members of the public or traded in stock exchanges. Law also restricts the number of members of the private company. Disclosure requirements are also less compared to publicly listed companies.

Explanation: The Australian company law, a company can be termed as a private or proprietary company if it is registered under The Corporations Act 2002. The company must be limited or unlimited by shares with maximum 50 numbers of non-employee shareholders. The chapter 6D of the act restricts the activities of the shareholders that may create the situation of disclosure to the investors.

Publicly listed company:

Definition: A publicly listed company is a company limited by shares and its shares are listed on stock exchanges and traded publicly.

Explanation: Ownership in a publicly listed company is not restricted.There is also no restriction on the number of members. Liability of each member is limited to the amount paid up in each share, and the membership is freely transferable. The stock of a publicly listed company is listed on a recognized stock exchange. They are freely trading able, and members of the public acquire the rights and liabilities of members of the company by subscribing to the shares. Such companies also have to comply with a greater number of rules and regulations compared to private companies as the interest of large number of members , who are not in direct control of the affairs of the company are involved. Thus disclosure requirements of these companies are also much more than the private companies.

Rules/Guidelines that influence the Preparation of Financial Statements in Australia,

The two most significant setoff rules/ guidelines that influence the preparation of financial statements in Australia are:

1) Disclosure of accounting policies- All reporting entities are expected to disclose the accounting policies in their reports.Any deviation from the accounting policies should be disclosed, and the material effects of such deviation from the policy should also be quantified and reported as far as possible. Disclosure should also be made when the fundamental accounting assumptions are not followed. The fundamental accounting assumptions are- 1) going concern concept- a business entity is assumed to have an infinite life well beyond it’s reporting period. 2)consistency-consistency means that the business entity’s accounting policies are consistent throughout the reporting period.

3) accrual concept- assumes that reporting entity recognizes revenues as they are earned and expenses as they are incurred.

2) Presentation of Financial statements:

All reporting entities are to present the statement of Financial performance should present a break-up of the financial performance in terms -1) ordinary activities 2) extra- ordinary activities and 3) prior period items.

1) Ordinary activities are the normal business activities of the firm. Thus results of financial performance from ordinary activities mean the profit or loss from the ordinary business activities of the firm.

2)Extra- ordinary activities are all activities which are not the normal –business activities of the firm. Thus profit and loss from the sale of non- business assets would comprise profit/ loss from extra- ordinary activities.

3) Prior period items-these are transactions of the previous reporting periods. Profits/ losses from such prior period transactions are also to be reported separately.

The effect of change in accounting estimates, as well as their material effect on the financial statements, also needs to be disclosed.

a) Columna General Accounts

Assets-

Dr/Cr

Date

Particulars

Debit

Credit

Balance

Mar 31

Cash

1,750

Mar 31

Account Receivables

5,760

7,510

Mar 31

Supplies

1,700

9,210

Mar 31

Motor vehicles

10,000

19,210

Mar 31

Land and Buildings

80,000

99,210

Liabilities

Mar 31

Accounts payable

5,245

Mar 31

Long Term Liabilities

38,000

43,245

Owner’s Equity

Mar 31

Steven May- Capital

61,100

Revenue

Dr/Cr

Date

Particulars

Debit

Credit

Balance

Mar 31

Service Revenue

2900

Mar 31

Discount Received

2955

Expenses

Mar 31

Discount expense

Mar 31

Electricity

400

440

Mar 31

Supplies Expense

7300

7740

Mar 31

Interest expense

350

8090

Working Notes:

CASH Account

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

3,000

Mar 2

A/c receivable+Discount

1500

4,500

Mar 4

Steven May- Capital

400

4,100

Mar 6

Long term loan

2000

2,100

Mar 9

A/c Receivables

1000

3,100

Mar 11

Cleaning Services

600

3,700

Mar 17

Addition supplies

3,500

200

Mar 20

Electricity

400

200

Mar 24

A/c Payable

2700

2900

Mar 28

Steven May- Capital

5000

2100

Mar 29

Interest

350

1750

Account Receivables-

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

6,000

Mar 2

Cash+ Discount

1540

4,460

Mar 9

Cash

1000

3,460

Mar 15

Service Revenue

2300

5,760

Supplies

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

2000

Mar 1

A/c Payable

3500

5500

Mar 9

Cash

3500

9000

Mar 31

Supplies- expense

7300

1700

Motor Vehicle

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

10000

Land and Vehicle

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

80000

Account Payables

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Opening balance

4500

Mar 1

Supplies

3500

Mar 24

Cash+ Discount

2755

5245

Long- Term Loan

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

40000

Mar 24

Cash

2000

38000

Discount- Expense

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 2

Profit- Loss A/c

Electricity

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 20

Profit- Loss A/c

400

Supplies expense

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 31

Profit- Loss A/c

7300

Interest expense

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 29

Profit- Loss A/c

350

Service Revenue

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 11

Profit- Loss A/c

600

Mar 15

Profit- Loss A/c

2300

2900

Discount Earned

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 24

Profit- Loss A/c

Capital

Dr/Cr

Date

Transactions

Debit

Credit

Balance

Mar 1

Opening balance

56,500

Mar 4

Drawings

400

56,100

Mar 28

Cash

5000

61,100

b) A Statement of Financial Performance for the period ending 31 March 2017

Revenue

Amt($)

Service Revenue

2900

Discount Received

Total Revenue(A)

2955

Expenses

Discount expense

Electricity

400

Supplies Expense

7300

Interest expense

350

Total Expenses(B)

8090

Loss (A-B)

5135

c) A Statement of Financial Position as at 31 March 2017.

Liabilities

Amt($)

Steven May- Capital

61100

Less Loss from Operations

5135

55965

Long term loan

38000

Account Payable

5245

Total (A)

99.200

Assets

Land and Buildings

80000

Motor Vehicles

10000

Supplies

1700

Accounts Receivables

5760

Cash

1750

Total (B)

99,210

d) A Statement of Cash Flows as at 31 March 2017.

Particulars

Amt($)

Op. balance

3000.00

Add- cash flow from operations

(5135)

Changes in working capital

(2210)

Add Capital infusion less drawings

4600

Less Loan capital

(2000)

Closing. Balance

(1745)

References:

1) Elliot, B., & Elliot, J. (2009). Financial accounting and reporting. London: McGraw-Hill Higher Education.

2) Lewis, R., & Pendrill, D. (2014). Advanced financial accounting. New York, NY: McGraw-Hill/Irwin.

3) Federal Register of Legislation – Australian Government. (n.d.). Retrieved August 02, 2017, from https://www.legislation.gov.au/Details/C2013C00605

4) Australian Accounting Standard Board. (n.d.). Accounting standards. Retrieved August 02, 2017, from http://www.aasb.gov.au/Pronouncements/Current-standards.aspx

Financial Statements

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