1.

THE

IMPACT

OF

FINANCE

ON

FINANCIAL

STATEMENTS
There are many items such as sales, collection of money, owners capital equity, issue of shares, payment of dividend, purchase of treasury, expenses, cost, borrowings, payment of principal, etc have an impact on the financial statements. When the company transacts, each item will affect financial statement. The first finance transaction should be mentioned is sales. When sales are made, it increases revenue in Income statement and, associate cost of goods sold, it affect on the net profit. On the balance sheet, sales make the merchandised goods decrease and increase cash collected or an account receivable. Therefore, making good sales would result in good impact on the sales, owners equity and the performance of a company. Secondly, the company tries to collect money or debt from customers or partners, etc. It is collection of money. When the company collects money, it decrease account receivables and increase cash. It is because the company collect money from their debtors and therefore, these item is converted into cash in the period paying bill, maybe from 30 to 60 days. It makes current assess on the balance sheet and capital in the income statement increases. Therefore, collection of money will raise the capital of the company to ensure the financial position of the company. Owners capital investment is the net capital after misusing every debts. On the balance sheet, owners capital equal to total assets minus total debts. Therefore, support that total debts doesnt change, when owners capital investment increases, it will increase total assets and increases chartered capital and total equity on balance sheet. The next finance action is issuing of shares. When the company issues new shares, it will increase interest (more detailed, interest payable) because they need to spend money to issue new shares to public and also, the company will pay more dividend to shareholders after a year so it will affect dividend on profit and loss statement. On the other hand, issuing new shares will generate capital on balance sheet because when investors buy its shares, they will increase the capital of the company. After a year, the company must pay dividend annually to their shareholders. The action will make retained profit for the year decreases on the income statement.

Not only pay dividend to shareholders, the company also must purchase treasury shares. It will decreases cash and cash equivalent on balance sheet. Moreover, it belongs to asset so it will increase indirectly assets of the company. Borrowing in business is the way to raise their capital and it becomes common action in any businesses. On the balance sheet, it will increase the figure in creditors such as bank loan and result of increasing in creditors. On the income statement, it will increase interest payable and therefore increase interest. From that, profit ordinary activities before taxation decreases. On the income statement, payment of interest will contribute to decrease profit. There are many interests that the company must pay such as payable on bank overdrafts or payable on debenture stock. On the balance sheet, it will increase creditors so it will decrease net assets of the company. Finally, increase in capital from retained earnings and reserves will increase owners equity on the balance sheet.