CAPITULO VII. ALCALDES MAYORES
Q. Audiencia de Quito
II. NOMBRAMIENTO
Format: There are two basic ways that balance sheets can be arranged. In Account Form, your assets are listed on the left-hand side and totaled to equal the sum of liabilities and stockholders' equity on the right-hand side. Another format is Report Form, a running format in which your assets are listed at the top of the page and followed by liabilities and stockholders' equity. Sometimes total liabilities are deducted from total assets to equal stockholders' equity.
Captions: Captions are headings within your statement that designate major groups of accounts to be totaled or subtotaled. Your balance sheet should include three primary captions: Assets, Liabilities and Stockholders' Equity. In the report form of presentation, the placement of your primary captions would be as follows: 2006 ASSETS, LIABILITIES AND STOCKHOLDER’S EQUITY.
Order of Presentation of Captions
:
First, start with items held primarily for conversion into cash and rank them in the order of their expected conversion. Then, follow with items held primarily for use in operations but that could be converted into cash, and rank them in the order of liquidity. Finally, finish with items whose costs you will defer to future periods or that you cannot convert into cash.4.3 STUDY OF CASH FLOW STATEMENT
4.3.1 MEANING
: Cash flow statement or statement of cash flows is a financial statement that shows a company's incoming and outgoing money (sources and uses of cash) during a time period (often monthly or quarterly).The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities. As an analytical tool the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
4.3.2 PURPOSE:
The cash flow statement reflects a firms liquidity or solvency. The main purpose to make cash flow statement are as follows:1. provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
2. provide additional information for evaluating changes in assets, liabilities and equity
3. improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
4. indicate the amount, timing and probability of future cash flows
4.3.3 ACTIVITIES INVOLVED IN CASH FLOW:
The cash flow statement is partitioned into cash flow resulting from operating activities, cash flow resulting from investing activities, and cash flow resulting from financing activities.Operating activities: Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising.
Investing activities: Investing activities focus on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long-term assets.
Financing activities: Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.
Analysis of cash flow statement is necessary for every organisation to depict its cash inflow and outflow.
4.4 FINANCIAL STATEMENT ANALYSIS
4.4.1 MEANING
: Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a valuable tool used by investors and creditors, financial analysts, and others in their decision-making processes related to stocks, bonds, and other financial instruments. With a great understanding of the balance sheet & p&l account and how it is constructed, we can look at some techniques to analyze the information contained within the balance sheet & p&l account.4.4.2 PURPOSE:
The main purpose of analyzing the financial statement are thefollowing:- To assess past performance and current financial position.
To make predictions about the future performance of a company.
4.4.3 TOOLS FOR ANALYSING 1.PERCENTAGE CALCULATION
There are two popular methods by which we can analyze the financial statement by calculating percentage as taking a common base.
Horizontal Analysis
When an analyst compares financial information for two or more years for a single company, the process is referred to as horizontal analysis, since the analyst is reading across the page to compare any single line item, such as sales revenues. In addition to comparing dollar amounts, the analyst computes percentage changes from year to year for all financial statement balances, such as cash and inventory. Alternatively, in comparing financial statements for a number of years, the analyst may prefer to use a variation of horizontal analysis called trend analysis.
Trend analysis involves calculating each year's financial statement balances as percentages of the first year, also known as the base year.
When expressed as percentages, the base year figures are always 100 percent, and percentage changes from the base year can be determined.
If we want to calculate % change in sales then we apply the following formula:
Vertical Analysis
When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies.
If we want to calculate % change of current assets then we apply the following formula:
Percentage: current assets/total assets*100