Financial Statement

Financial Statement is the important files we can know the position of the company from them so There are rapid developments in the field of business and finance, so the accounts 

preparing the financial statements to doing analysis and how the organizations 

manage their resources and improve the way the organizations work. There are 

four or five financial statements the accounts must prepared during the year but 

we will talk here about only two financial statements.

The first one the statement of cash flow
: 

1/ the statement of cash flows shows the net cash during a certain accounting 

period it shows also how cash moved during the period.  The statement of cash 

flows helps the company to make a correct evaluation for its assets and its 

liabilities to measure its ability to pay its short -term liabilities. 

2/ the statement of cash flows comprised from three sections (operating activities 

& investing activities and financial activities).

3/ cash flow from operating activities: it is related to the company’s revenue, cash 

flow from investing activities: it is related to the company’s fixed assets, cash flow 

from financial activities: it is related to the company’s financial activities like 

issuing stock, dividend payments etc.  

4/ there are two methods to view the statement of cash flows (direct method & 

indirect method).

The direct method 

 Cash receipts from customers = Net sales + beginning accounts receivables – 

ending accounts receivables – bad debts.

Cash payments to suppliers = purchases + ending inventory – beginning inventory 

+ beginning accounts payable – ending accounts payable.

 Cash payments to employees = beginning salaries payable – ending salaries 

payable + salaries expenses

The indirect method 

 Net income + Depreciation – increase in accounts receivable – increase in 

inventory – increase in prepaid expenses + increase in accounts payable + 

increase in accrued expenses.

We can use the statement of cash flows to solve the weakness, also the 

statement of cash flows gives the necessary recommendation to overcome the 

financial problems and it helps the organization to manage its sources 

After preparing the statement of cash flows the organization can use analysis 

tools to achieve its targets.

The second one the balance sheet:

The balance sheet shows the financial position of the organization in the end of 

the year.

The main equation for the balance sheet:- 

Assets= liabilities + owner’s equity

 Or owner’s equity = assets - liabilities  

There are three sections for the balance sheet:-

1/ Assets: the economic resources for the organization which are measured in 

accordance with accounting standards, the assets consist of the following 

elements:-

1/ current assets: - it means the cash or the other assets convertible into cash 

within one financial period. The current assets include a large of items so we 

explain some of them according to its liquidity.
prepared by : Mohamed M. Ali