Subject:

Finance for Engineers

Topic:

Financial Statements

SAP ID:
42618
Name:
Muzzamil Janjua
Class:
MS Engineering Management
(2st Semester)

Assignment # 1
Submitted to:

Sir Muhammad Usman

Financial Statements
Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statements are often audited by government agencies,
accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. For-profit
primary financial statements include the balance sheet, income statement, statement of cash flow, and
statement of changes in equity. Nonprofit entities use a similar but different set of financial statement.
Financial statements provide a snapshot of a corporation's financial health, giving insight into its
performance, operations, and cash flow. Financial statements are essential since they provide
information about a company's revenue, expenses, profitability, and debt. The company's management
is the first and foremost user of the financial statements. Although they are the ones who prepare the
financial statements, the board and the management need to refer to them while considering the
progress and growth of the company.
Types of Financial Statements
1. Statement of profit and loss Account (Income statement)
2. Statement of financial position (Balance Sheet)
3. Statement of Cash Flow (Incoming & Outgoing of cash)
4. Statement of change in owners’ equity
5. Notes to financial Statement

1. Statement of Profit and loss Account (Income Statement)

A P&L statement shows a company's revenue minus expenses for running the business, such as
rent, cost of goods, freight, and payroll. Each entry on a P&L statement provides insight into the
cash flow of the company and shows where money is coming from and how it is used. The term
profit and loss (P&L) statement refers to a financial statement that summarizes the revenues,
costs, and expenses incurred during a specified period, usually a quarter or fiscal year. These
records provide information about a company's ability or inability to generate profit by
increasing revenue, reducing costs, or both. P&L statements are often presented on a cash or
accrual basis. Company managers and investors use P&L statements to analyze the financial
health of a company.
How Profit and Loss (P&L) Statements Work
The P&L statement is one of three financial statements every public company issue on a
quarterly and annual basis, along with the balance sheet and the cash flow statement. It is often
the most popular and common financial statement in a business plan as it shows how much
profit or loss was generated by a business. The P&L or income statement, like the cash flow
statement, shows changes in accounts over a set period of time. The balance sheet, on the other
hand, is a snapshot, showing what the company owns and owes at a single moment. It is
important to compare the income statement with the cash flow statement since, under
the accrual method of accounting, a company can log revenues and expenses before cash
changes hands.
 2. Statement of Financial Position
The statement of financial position, often called the balance sheet, is a financial statement that
reports the assets, liabilities, and equity of a company on a given date. In other words, it lists the
resources, obligations, and ownership details of a company on a specific day. The statement of
financial position is another term for the balance sheet. The statement lists the assets,
liabilities, and equity of an organization as of the report date. As such, it provides a
snapshot of the financial condition of a business as of a specific date. It is one of the
financial statements, and so is commonly presented alongside the income statement and
statement of cash flows. The format of the statement of financial position follows the basic
accounting equation, which states that: Assets = Liabilities + Equity
When the Statement of Financial Position is Used
The statement of financial position is most commonly issued when a business is operating
under a double entry accounting system, since this approach provides for ongoing updates to
asset, liability, and equity accounts. If an entity is instead using a single entry accounting
system, there is no easy way to construct the statement, which is usually compiled manually.
In addition, the statement provides more meaningful information when it is prepared using
the basic accounting principles mandated by the accounting frameworks, such as generally
accepted accounting principles or international financial reporting standards.
 3. Statement of Cash Flow
A cash flow statement is a financial statement that provides aggregate data regarding all cash
inflows a company receives from its ongoing operations and external investment sources. It also
includes all cash outflows that pay for business activities and investments during a given period.
The Statement of Cash Flows (also referred to as the cash flow statement) is one of the three key
financial statements that report the cash generated and spent during a specific period of time
(e.g., a month, quarter, or year). The statement of cash flows acts as a bridge between the income
statement and balance sheet by showing how money moved in and out of the business. Three
Sections of the Statement of Cash Flows:
Operating Activities: The principal revenue-generating activities of an organization and other
activities that are not investing or financing; any cash flows from current assets and current
liabilities.
Investing Activities: Any cash flows from the acquisition and disposal of long-term assets and
other investments not included in cash equivalents.
Financing Activities: Any cash flows that result in changes in the size and composition of the
contributed equity capital or borrowings of the entity (i.e., bonds, stock, dividends).
 4. Statement of Change in Owners’ Equity
A statement of change in equity (also referred to as statement of retained earnings) is a business'
financial statement that measures the changes in owners' equity throughout a specific accounting
period. It covers the following elements: Net profit or loss. Dividend payments. An equity
statement also referred to as a statement of owner’s equity or statement of changes in equity is a
financial statement that a company is required to prepare along with other important financial
documents at the end of a reporting period. The statement of owner’s equity reports the changes
in company equity. The changes that are generally reflected in the equity statement include the
earned profits, dividends, inflow of equity, withdrawal of equity, net loss, and so on.
 Equity, in the simplest terms, is the money shareholders have invested in the business including
all accumulated earnings.
 An equity statement is a financial statement that a company is required to prepare along with
other important financial documents at the end of the financial year.
 The statement of owner’s equity reports the changes in company equity, from an opening
balance to and end of period balance. The changes include the earned profits, dividends, inflow
of equity, withdrawal of equity, net loss, and so on.
 This primary purpose of Statement of Changes in Equity is to provide details about all the
movements in the equity account during an accounting period, which is otherwise not available
anywhere else in the financial statements. As such, it helps the shareholders and investors make
more informed decisions about their investments. Further, it also allows the analysts and other
readers of the financial statements to understand what factors resulted in the change in the equity
capital.

5. Notes for Financial Statements

Notes to the financial statements disclose the detailed assumptions made by accountants when
preparing a company's: income statement, balance sheet, statement of changes of financial
position or statement of retained earnings. The notes are essential to fully understanding these
documents. The notes to the financial statements communicate information necessary for a fair
presentation of financial position and results of operations that is not readily apparent from, or
not included in, the financial statements themselves. Notes usually includes
1. Identification information.
2. General information about the reporting entity.
3. Statement of compliance with IFRS.
4. Summary of significant accounting policies.
5. Risk management and other disclosures on capital management.
6. Disclosures on individual line items of financial statements.
7. Integral part.
Financial statement notes are the supplemental notes that are included with the published
financial statements of a company. The notes are used to explain the assumptions used to prepare
the numbers in the financial statements, as well as the accounting policies adopted by the
company. They help different types of users, such as financial analysts and investors, to interpret
all the numbers added to the financial statements. When conducting an audit of the financial
statements, the auditor conducts a thorough investigation of all the information contained in the
financial statements, including the notes to the financial statements. Auditors use the notes to
determine if the accounting policies used are appropriate, properly applied, and are reflected in
the reported results of the company. The notes may also provide information on underlying
issues relating to the overall financial health of the company. The auditor bases his audit opinion
on the financial statement numbers, as well as the notes to the financial statements.

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 Walmart Stores Inc.
Notes to Condensed Consolidated Financial Satements