Week 2 Group 2 - Financial Statement PDF

Overview of Financial Management and its Environment APPLICATION UNDERSTANDING FINANCIAL STATEMENTS AND ITS UNDERLYING CONCEPTS Members: Group 2 -NE1 Salem, Mickaela Andrea Andrade, Aaro...

Overview of Financial Management and its Environment APPLICATION UNDERSTANDING FINANCIAL STATEMENTS AND ITS UNDERLYING CONCEPTS Members: Group 2 -NE1 Salem, Mickaela Andrea Andrade, Aaron Arvin Torreno, Brian Kenneth Iguin, Diana Rose Abeleda, Kim Nicole Keh, Arianne Lyn 3MBA603 Financial Management - Dr. Carmela S. Perez  Overview Business Activity and Business Organization Presenter: Mickaela Andrea Salem Understanding Financial Statements in Terms of Structure Presenter: Aaron Arvin Andrade & Kim Nicole Abeleda Contents and Underlying Concepts in their preparation Presenter: Brian Kenneth Torreno Case Study: MP Taps and Fittings Enterprise Presenter: Diana Rose Iguin & Arianne Lyn Keh Presenter: BUSINESS ORGANIZATION Sole Proprietorship S Partnerships Corporation WHAT IS BUSINESS ORGANIZATION?  BUSINESS ORGANIZATION an activity that involves a group of people who providing goods or services come together to pursue in exchange for money. a common goal. BUSINESS ORGANIZATION a group of people that comes together to produce goods or services with the goal of making a profit. FORMS OF BUSINESS ORGANIZATION SOLE CORPORATION PARTNERSHIP PROPRIETORSHIP SOLE PROPRIETORSHIP ADVANTAGES DISADVANTAGES Easy to start-up Unlimited Liability Low start-up costs Limited access to Full Control resources Tax incentives Life of business = Easy to life of owner Discontinue PARTNERSHIP ADVANTAGES DISADVANTAGES Easy to start-up Unlimited Liability More resources Bound by each Shared decison other’s actions making Responsible for Tax advantages partner decisions CORPORATION ADVANTAGES DISADVANTAGES Easy to raise capital Difficult and No personal liability expensive to start up Transfer ownership Loss of Control Unlimited Life Higher Taxes Can hire the best More Regulation labor and best equipment BUSINESS ACTIVITY Operating Activites Investing Activites Financing Activites BUSINESS ACTIVITY Provide customers with services and goods that meets our wants and needs. Presenter:  BUSINESS ACTIVITIES OPERATING ACTIVITIES INVESTING FINANCING ACTIVITIES ACTIVITIES OPERATING ACTIVITIES The core functions related to producing and selling products or services. Presenter: INVESTING ACTIVITIES The core functions related to producing and selling products or services. Presenter: FINANCING ACTIVITIES The core functions related to producing and selling products or services. Presenter:  Understanding Financial Statements in Terms of Structure BALANCE SHEET INCOME STATEMENT CASH FLOW STATEMENT FINANCIAL STATEMENT Financial statements as described in the PFRS show the results of the stewardship of management -- the accountability of management for the resources entrusted to it. There are two types of financial statements: General purpose and Special purpose. General purpose financial statements are prepared on a basis that is designed to provide useful information to a wide range of users (e.g. investors and creditors) who are not in a position to demand reports tailored to meet their particular needs. BALANCE SHEET / FINANCIAL POSITION INCOME STATEMENT / STATEMENT OF PROFIT OR LOSS STATEMENT OF CASH FLOWS BALANCE SHEET The statement of financial position (sometimes called the balance sheet) presents an entity’s assets, liabilities, and equity as of a specific date - the end of the reporting period CURRENT Expected to be converted into cash in less than one (1) year Will be paid in less than one (1) year NON-CURRENT Expected to be held greater than one (1) year Repayment terms longer than one (1) year Fundamental Equation ASSETS = LIABILITIES + EQUITY BALANCE SHEET INCOME STATEMENT The Income Statement is one of a company’s core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities. REVENUE - EXPENSES = NET INCOME  REVENUE - EXPENSES = NET INCOME  INCOME STATEMENT SINGLE STEP MULTIPLE METHOD It uses a single equation to calculate profits. A 3-step process to calculate the net income, and it segregates operating incomes and expenses from the non-operating incomes. CASH FLOW STATEMENT This statement shows the cash inflows and outflows over a period of time, divided into three activities: OPERATING INVESTING FINANCING ACTIVITIES ACTIVITIES ACTIVITIES Cash flows from the core Cash flows from the Cash flows related to borrowing, business operations. purchase and sale of assets. repaying debt, and equity transactions OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES  CASH FLOW STATEMENT DIRECT METHOD INDIRECT METHOD Operating cash flows are presented as a list of cash flows: Operating cash flows are presented as a reconciliation from cash in from sales, cash out for operating expenses. profit to cash flow. Contents and Underlying Concepts in their Preparation Presenter: Brian Kenneth Torreno  ACCRUAL CONCEPT revenue is recognized when earned, and expenses are recognized when assets are consumed. MATCHING CONCEPT the expenses related to revenue should be recognized in the same period in which the revenue was recognized. ENTITY CONCERN the transactions of a business are to be kept separate from those of its owners. CONSISTENCY CONCEPT once a business chooses to use a specific accounting method, it should continue using it on a go-forward basis. GOING CONCERN the assumption that the business will remain in operation in future periods. CONSERVATISM revenue is only recognized when there is a reasonable certainty that it will be realized, whereas expenses are recognized sooner, when there is a reasonable possibility that they will be incurred.  CASE STUDY: MP TAPS AND FITTINGS ENTERPRISE BRIEF SUMMARY Financial Challenges Several Steps to Address Financial Challenges  MP TAPS AND FITTINGS ENTERPRISE Brief Summary Mr. Manohar Prakash, a Chief Marketing Manager at SriRam Faucet Ltd., started his own faucet manufacturing business after identifying a gap in the market for premium faucets with better features. He leased a property from his friend, Nixit Arnold, under an agreement that the rent would increase if the business's ROI exceeded 20%. His factory received its first major order from Amrapali builders, which boosted his confidence. However, his business faced challenges, especially due to market slowdowns, and initially, there were no orders after the first big sale. Fortunately, orders started flowing in from mid-July, primarily due to Manohar’s contacts, and the business gained MANOHAR PRAKASH momentum, requiring additional workers. ROLE: Former Chief Marketing Manager at SriRam Faucet Ltd., Experienced In the Faucet industry. However, a critical issue arose in March 2016 when his accountant, Arun Chandra, was involved in an accident that not MP Taps and Fittings Enterprise, FY March 2016 only injured him but also resulted in the destruction of all the Sole Proprietorship company's financial records. With the financial year-end "Quality Products and Supply" approaching and no detailed books of accounts available, Manohar found himself in a crisis, unsure how to proceed with the final accounts preparation. Challenges and Accounting Issues Despite a promising start, the business faces challenges such as a lack of continuous orders and financial difficulties. 1. Inconsistent Orders: The business struggled with a lack of continuous orders, which affected cash flow and made it difficult to maintain steady operations. 2. Financial Record Loss: An accident involving accountant led to the loss of all accounting records, creating significant difficulties in financial management and reporting. 3. Cash Flow Issues: The enterprise faced challenges in managing cash flow, which is crucial for covering operational costs and investing in growth. 4. Need for Proper Financial Management: The case highlighted the importance of applying accounting principles and conventions to ensure accurate financial reporting and management. Several steps to address their financial challenges 1. Rebuilding Financial Records: After the loss of accounting records due to the accident, Manohar Prakash and his team worked diligently to reconstruct the financial records. This involved gathering all possible transaction details from suppliers, customers, and bank statements. 2. Applying Accounting Principles: They emphasized the application of accounting principles and conventions, such as the accrual concept and the revenue realization principle, to ensure accurate financial reporting. 3. Improving Cash Flow Management: Manohar focused on better cash flow management by negotiating favorable payment terms with suppliers and ensuring timely collection from customers. 4. Seeking Continuous Orders: To address the issue of inconsistent order, Manohar actively sought new clients and diversified the product offerings to attract a broader customer base. 5. Financial Planning and ROI: They implemented better financial planning practices including regular monitoring of Return on Investment (ROI) to ensure the business remained profitable and sustainable. Financial Management The case is designed to help understand the application of accounting principles in recording financial transactions, the treatment of adjustment entries, and the importance of Return on Investment (ROI). Learning outcomes The case emphasizes the need for proper financial management and the preparations of final accounts, showcasing the application of various accounting concepts like the accrual concept, revenue realization principle, and the convention of conservatism. Any Question? Thank You! F OR YO U R A T T EN TION Group 2