Question

Chapter one and appendix A

Accounting

• What information is contained on an annual report
• Examples of internal and external users of a company’s financial
• The order of which the 4 financial statements are prepared and what information is reported on each
• Identify the steps and sequencing in the accounting process

Answer 1

Annual report:

It is a comprehensive report on company's activities which is given to the shareholders and also to the other outsiders who are interested in the activities of a company about the activities done by the company during the year and regarding its financial performance with the comparison of the previous year reports of the same entity to show the growth of company and its improvement during the year.

Internal and External users of company financial data are the users of the financial statements based on which they invest in the company, provide financial support in the way of loans and also credit worthiness will be given by creditors etc...

Internal users include Existing shareholders, Employees, Key managerial personnel of the company.

External users include the bankers, suppliers, outside investors who are interested to invest in the company

Major components of annual report are:

1. Balance sheet (or) statement of financial position

2. Profit and loss (or) income statement

3. Cash flow statement

4. Statement of other equity (or) Retained earnings statement

5. Directors report

6. Auditors report

The above mentioned Balance sheet, profit and loss statement, cash flow statement are called as financial statements of the company.

A complete set of financial statements is used to give readers an overview of the financial results and condition of a business. The financial statements are comprised of four basic reports, which are as follows:

• Income statement : It represents the revenues, expenses, and profits/losses generated during the reporting period. This is usually considered the most important of the financial statements, since it presents the operating results of an entity.

• Balance sheet:Presents the assets, liabilities, and equity of the entity as of the reporting date. Thus, the information presented is as of a specific point in time. The report format is structured so that the total of all assets equals the total of all liabilities and equity (known as the accounting equation). This is typically considered the second most important financial statement, since it provides information about the liquidity and capitalization of an organization.

• Statement of cash flows: It presents the cash inflows and outflows that occurred during the reporting period. This can provide a useful comparison to the income statement, especially when the amount of profit or loss reported does not reflect the cash flows experienced by the business. This statement may be presented when issuing financial statements to outside parties.

• Statement of retained earnings: It presents changes in equity during the reporting period. The report format varies, but can include the sale or repurchase of shares, dividend payments, and changes caused by reported profits or losses. This is the least used of the financial statements, and is commonly only included in the audited financial statement package.

• Directors report: It is report which is given by the directors that they have disclosed all the required information and the financial statements that they have prepared are according to standards and also consists of Directors responsibility statement.

• Auditors report: It is a report if opinion given by the auditors that they have verified the financial statements prepared by the management of the company and they will express a reasonable assurance that these financial statements are free from material misstatements

When the financial statements are issued internally, the management team usually only sees the income statement and balance sheet, since these documents are relatively easy to prepare.

The four basic financial statements may be accompanied by extensive disclosures that provide additional information about certain topics, as defined by the relevant accounting framework (such as generally accepted accounting principles).

Thses are statements and components of the Annual report issued to the outsiders by the management of the entity.

Thank you