FINANCIAL STATEMENTS

September 1, 2021by Stefan0
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With the introduction of the amendments to the Law on Accounting from 2020, the application of some provisions has started in 2021, which means that they will be applicable to the preparation of the financial reports for the year 2021. One of the novelties refers to the submission deadlines, abolishing the submission of statistical reports and final financial statements and stipulating single deadline – March 31, 2022. The novelty is related to the implementation of notes to balance sheet and income statement. Balance sheet and income statement are the basic elements of accounting reports; they are part of a company annual statement of accounts and they demonstrate the financial position and performance of that company during a fiscal year.

Financial statements provide the information about performance assessment to both external (investors, creditors, tax authorities, statistical authorities, etc.)
and internal users (employees, owners, managers, etc.).

 

BALANCE SHEET

Balance sheet represents an overview of the entire company property on a specific day; it consists of assets demonstrating funds and liabilities that demonstrate the sources of those funds.

The classification of these finance within the assets is conducted in accordance with their purpose so that we have core and non-core assets.

Core assets consist of fixed and current assets. Fixed assets or capital assets represent the operating base and are used during a longer period of time i.e. their turnover ratio within the business life cycle is higher than one, they have higher value and their use does not change their appearance.

Current assets have single-use character; they enter the substance of a new product and change their appearance, transferring their whole value at the same time. These are the commonly and quickly reproduced assets i.e. their use is most often their complete consumption.

Non-core assets first appear as reserve assets.

Liabilities or fund sources are the sources of core and non-core assets. The core asset sources include capital (national, social, share, cooperative, etc.), bank and other loans as well as all types of obligations. Fund sources can also be classified by their origin and in that case we have two groups: personal and borrowed. Personal sources are the sources that involve the obligation to pay off the loan to the owner i.e. co-owner of the company. This is the capital stock: national, share, stake, social, etc., then reserves (capital, revalorization, legal, statutory, etc.) and non-allocated profit. Borrowed sources are the sources that do not involve the obligation to pay off the loan to other subjects – banks, creditors, investors and in this case, the deadline is always defined. Depending on the deadline, these funds can be long-term (deadline exceeding one year) and short-term obligations (deadline less than one year).

 

INCOME STATEMENT

Income statement is a financial statement based on which users can gain insight into the competence of a company to gain profit. It provides the information about the net result i.e. about the profit or loss made in the reference period.  Profit i.e. loss is made due to the equity increase i.e. decrease, which is the result of the company business operations and it is determined by comparing the initial and final balance sheet items, after which the corrections are made in accordance with the obtained difference.

Income statement is the most important financial statement that indicates company profitability and provides data on the performance results. Total expenses and total income are contained in the income statement and the result is either profit or loss or the income and expenses are equal.

 

NOTES TO FINANCIAL STATEMENTS

Balance sheet, income statement and even a wider set that includes capital fluctuations and cash flow indicate i.e. provide information about financial position and profitability, which is often not enough for the financial statement users and this is why there is the necessity to provide additional descriptive information to increase the usability of these statements. The notes to financial statements provide that exact kind of information i.e. they additionally clarify the structure, value and marks of balance sheet items. The notes contribute to the provision of better description and financial statement understanding.

 

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