Lecture Video 8

Lecture 8: The Financial Statements

Let's take a look at the financial statements themselves. We've spoken about the fact that the format of your financial statements, your AFS, come from IFRS, your International Financial Reporting Standards. If you can't remember that, go back and do some revision. 

We said that the conceptual framework told you that there were qualitative characteristics. In order for the information to be useful, it has to be relevant it, has to be faithfully represented, it also needed to be comparable, understandable, verifiable, and timely. You don't remember that, go back and take a look at the videos again. 

And that the going concern is an underlying assumption. In other words, we assume that everything is going to carry on as it is at the moment. 

The financial statements  

(The actual reports that you're going to be giving your user) 

We have a statement of profit or loss and other comprehensive income. Your financial statements you start off with is your statement of profit or loss and comprehensive income. You will have to get very comfortable with these terms because you'll be using it lot. This discusses the performance for the year. We'll get into detail later.

Statement of financial position 

Your statement of financial position is the position that you have at the end of the year. So the performance throughout the whole year and the position that you have at the end of the year.

Statements of changes in equity 

We also have statements of changes in equity, which indicates the changes in ownership and how much money belongs to the owners themselves.  Again, we'll get into detail later. 

Statement of cash flows 

Statement of cash flows shows the movement of cash within the business. 

So these are our main sets of financial statements: statement of profit of loss and other comprehensive income, statement of financial position, statements of changes in equity, and statement of cash flows. 

The two that we're going to focus most on in this particular course are these two: 

  • Our statement of profit or loss  

  • Our statement of financial position

When we look at these, these are your two most common standards, also common statements, and we have to be very careful that we’re comfortable with this. Your statement of profit and loss discusses the performance that you had over the year. It discusses how you did throughout the year; your income and your expenses. 

Whereas your statements of financial position is what's going on right at the end of the year. It's like taking a photo of your business right on the very last day of the year. It doesn't tell you how many sales you made on day one; it just tells you this is where you are now; this is how much money you have; this is how much money you owe other people; this is how much money that has been invested in your company. So it really just gives you balances, and it tells you like little photos of what's happening at the end of the year.  

Whereas your performance, your statement of profit or loss, tells you this is what happened on day 1 & 2 & 3 & 4 & 5 and collects all of that together and adds it together, and it says - at the end of the year your total sales for the year were this. So we’ll get very comfortable with the difference between these two; this is your performance, and this is about your position. 

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