Welcome to our

Presentation
Session

Topic: Interpretation of financial

statements
Group members name:

Md. Abdul Kaium

120106031

Md. Abdullah Reza

120106045

Financial Statements :
Financial statements are formal
records of the financial activities
of a business, person, or other
entity. Financial statements provide
an overview of a business or
person's financial condition in both
short and long term.

PURPOSES OF FINANCIAL
STATEMENTS
a) The basic purpose of financial statement is
communicate
to
their
interested
users,
quantitative and objective information are useful
in making economic decisions.
b) Financial statements are intended to meet the
specialized needs of conscious creditors and
investors.
c) Financial statements are prepared to provide
reliable information about the earning of a
business enterprise and it ability to operate of
profit in future.

d) Financial statements are intended to provide the

base for tax assessments.
e) Financial statement are prepare in a way
provide information that is useful in predicting
the future earning power of the enterprise.
f) Financial statements are prepares to provide
reliable information about the changes in
economic resources.

Limitations of Financial Statements

(1) Financial Statements are normally
prepared on the basis of accounting principles,
conventions and past experiences.
(2) Financial Statements emphasize to disclose
only monetary facts, i.e., quantitative
information
(3) Financial Statements disclose only the
historical information. It does not consider
changes in money value, fluctuations of price
level etc.

(4) Influences of personal judgments leads to

opportunities for manipulation while preparing of
financial statements.

(5) Information disclosed by financial statements

based on accounting concepts and conventions.
It is unrealistic due to difference in terms and
conditions and changes in economic situations.

Types of Financial Statements :

The four main types of financial
statements are:
Statement of Financial Position
(Balance Sheet)
Statement of Activities
(Income Statement)
Statement of retained earnings
Statement of Cash Flows

 Statement of Financial Position

(Balance Sheet):
It is comprised of the following three elements:
1. Assets: Something a business owns or controls
(e.g. cash, inventory, plant and machinery, etc.)
2. Liabilities: Something a business owes to
someone (e.g. creditors, bank loans, etc.)
3. Equity: What the business owes to its owners.
This represents the amount of capital that
remains in the business after its assets are used
to pay off its outstanding liabilities. Equity
therefore represents the difference between the
assets and liabilities.

 Statement of Activities
(Income Statement):
Income Statement is composed of the
following two elements:
1. Income: What the business has earned
over a period (e.g. sales revenue,
dividend income, etc.)
2. Expense: The cost incurred by the
business over a period (e.g. salaries and
wages, depreciation, rental charges, etc.)
Net profit or loss is arrived by deducting
expenses from income.

 Statement of retained earnings

The movement in owners' equity is
derived from the following components:
Net Profit or loss during the period as
reported in the income statement
Share capital issued or repaid during
the period
Dividend payments
Gains or losses recognized directly in
equity (e.g. revaluation surpluses)
Effects of a change in accounting
policy or correction of accounting error

 Statement of cash flow

The movement in cash flows is classified into
the following segments:
Operating Activities: Represents the cash
flow from primary activities of a business.
Investing Activities: Represents cash flow
from the purchase and sale of assets other
than inventories (e.g. purchase of a factory
plant)
Financing Activities: Represents cash flow
generated or spent on raising and repaying
share capital and debt together with the
payments of interest and dividends.

THANK YOU