3.2 financial statement

Classified Balance Sheet

• Classify assets and liabilities into current and non-current categories.
• Prepare a Classified Balance Sheet.

Classification of Operating Expenses

• Service Business (DBS Bank)
  • Revenue
  • Less: Operating expenses
    • selling & distribution expenses
    • general & admin expenses
    • financial expense
  • Net Profit
• Trading Business (Sheng Siong)
  • Sales
  • Less: Cost of Goods sold (COGS)
  • Gross Profit
  • Add: Other operating revenue
  • Less: Operating expenses
    • selling and promo expenses
    • general & admin expenses
    • financial expense
  • Net Profit

Assets

• Assets = OE + Liabilities
• Assets: Resources owned with economic value, providing future benefit.
• Classified into:
  • Current Assets
  • Non-Current Assets / Fixed Assets

Current Assets

• Expected to be converted to cash or used within one year.
• Examples:
  • Cash and Cash Equivalents: Currency, bank deposits, short-term investments.
  • Marketable Securities: Stocks, bonds easily bought or sold.
  • Accounts Receivable (Debtors): Amounts owed by customers.
  • Inventory: Raw materials, work-in-progress, finished goods.
  • Prepaid Expenses: Advance payments for future goods/services.
  • Accrued Revenue: Revenue earned but not yet billed.

Non-Current Assets (Fixed Assets)

• Provide economic benefit beyond one year, less liquid.
• Examples:
  • Property, Plant, and Equipment (PP&E): Land, buildings, machinery.
  • Intangible Assets: Patents, trademarks, copyrights, goodwill.
  • Investments: Long-term stocks, bonds, real estate.
  • Long-Term Receivables: Amounts not collected within one year.

Liabilities

• Liabilities: A company's financial obligations or debts.

Current Liabilities

• Settled within one year or operating cycle.
• Examples:
  • Accounts Payable (Creditors): Amounts owed to suppliers.
  • Unearned Revenue: Advance payment from customers, services not yet performed.
  • Accrued Expenses: Expenses incurred but not yet paid (salaries, utilities).
  • Short-Term Loans: Due for repayment within one year.
  • Current Portion of Long-Term Debt: Portion due within one year.

Non-Current Liabilities (Long-Term Liabilities)

• Obligations not due for settlement within the next year.
• Examples:
  • Long-Term Loans / Bonds Payable: Repayment terms beyond one year.
  • Long-Term Lease Liabilities: Liabilities owed for using property.

Balance Day Adjustments

• Adjustments at month-end for accurate profit determination.
  • Prepaid Expenses: Advance payments (insurance, rent).
  • Unearned Revenue: Advance payment, services not yet performed.
  • Accrued Expenses: Expenses incurred, not yet paid (salaries, utilities).
  • Accrued Revenue: Revenue earned, not yet billed.
• Summary:
  • Prepaid Expenses: Current Asset
  • Unearned Revenue: Current Liability
  • Accrued Expenses: Current Liability
  • Accrued Revenue: Current Asset

Working Capital

• Working Capital = CA - CL,
  • $Working\ Capital = CA - CL$
• Indicates liquidity for day-to-day operations.

Classified Financial Statements

• Provide meaningful financial data summaries.
• Facilitate comparison with past periods and other firms.
• Establish responsibility and accountability.
• Comply with financial reporting standards.

Objectives of Classified Financial Reports

• Provide relevant, reliable, and comparable information for decision-making.
• Help users understand a company's financial position and prospects.
• Enhanced Understanding: Organize information for easier interpretation.
• Improved Comparability: Enable comparison across periods or companies.
• Better Decision-Making: Assist in evaluating financial health and risks.
• Compliance with Reporting Standards: Ensure adherence to GAAP and IFRS.
• Facilitation of Analysis: Allow calculation of financial ratios and KPIs.