Understanding Annual Accounts and Financial Reporting

Posted on Dec 18, 2024 in Economy

Annual Accounts: True and Fair View

The annual accounts consist of the Balance Sheet, Profit and Loss Account, the Statement of Changes in Equity, the Cash Flow Statement, and the Report.

Elements of the Annual Accounts

In the Balance Sheet:

  • Assets
  • Liabilities
  • Equity

In the Profit and Loss Account or, where appropriate, directly in the Statement of Changes in Equity:

  • Income
  • Expenditure

Grants, Donations, and Bequests Received

A grant is a transfer of assets aimed at delivery in cash or in kind without compensation by the beneficiary and affected to an end, purpose, activity, or project. The valuation is carried out by the amount received or the fair value of the asset.

Classes

  • Farm subsidies: Intended to offset operating deficits or insure a minimum return. Be charged directly to results like those for specific items of expenditure when they are earned.
  • Capital grants: Aimed at the acquisition of assets or settling liabilities and charged to income systematically. Where authorization to acquire assets are counted as income for the year in terms of the redemption or, where appropriate, disposal, valuation adjustment for impairment or low-balance sheet assets. Where authorization for cancellation of debts will be charged as income exercise in which the appearance of such cancellation. The same treatment applies to bequests and donations received.

Concepts

  • Accrual: The effects of transactions or economic events are recorded when they occur, be charged to the financial year to which the annual accounts relate, the costs and revenues affecting the same, regardless of the date of payment or collection.
  • Uniformity: Adopted an approach within the alternatives, if any, are allowed, keep it in time and uniformly applied to transactions, other events or conditions that are similar in both cases not altered that motivated their choice.
  • Prudence: Shall be cautious in the estimates and assessments to be carried out under conditions of uncertainty. Prudence does not justify the valuation of the assets does not meet the true image which should reflect the annual accounts. Only profits are counted until the date of financial close.
  • No compensation: Unless a rule expressly provided otherwise, can not offset the asset and liabilities or income and expenditure, and appraised separately the elements of the annual accounts.
  • Historical cost: Historical cost or cost of an asset is its purchase price or cost of production. The historical cost or cost of a liability is the value that corresponds to the consideration received in exchange for incurring the debt or the amount of cash that is expected to deliver to settle a debt in the ordinary course of business.
  • Fair value: Is the amount for which an asset could be exchanged or a liability settled between willing parties informed, engaged in a transaction in terms of arm’s length. In general, fair value is calculated by reference to the price quoted in an active market, defined to be one in which the following conditions: a) the items traded in the market are homogeneous; b) can be found at almost any time buyers or sellers for a particular good or service; c) Prices are known and readily accessible to the public. These prices also reflect real market transactions, current and regularly produced.
  • Amortized cost: Amortized cost of a financial instrument is the amount that was initially assessed a financial asset or financial liability, less principal repayments had been produced more or less, as appropriate, the party charged in the profit and loss account.
  • Book value: Book value or in books is the net amount by which an asset or liability is recorded in balance once deducted, in the case of assets, accumulated depreciation and any accumulated impairment valuation adjustment has been recorded.
  • Value in use: Is the present value of expected future cash flows expected to arise from the continued use of an asset and, where appropriate, their sale or disposal by other means at the end of its useful life.
  • Recoverable amount: Is higher of fair value less costs to sell of an asset and its value in use.
  • Provision: The provisions are nonfinancial liabilities, specified in terms of its nature but uncertain as to amount or as to the time of cancellation.
  • Cash equivalents: Means those investments, cash equivalents Short-term, large liquidity, easily convertible into money and exposed to an insignificant risk. Its purpose is the fulfillment of cash commitments rather than short-term investment in itself.

The Statement of Changes in Equity (ECPN)

The Statement of Changes in Equity (ECPN) is required in the new General Accounting Plan, for all companies, there being a normal model and a reduced form the same limits as the balance and the only difference is the inclusion or not of a further breakdown on the items preceded by Roman numerals. The ECPN has two parts:

A) The first part, called “State of recognized income and expense,” tracks changes in equity for all income and expenditure, whether included in profit or loss account and loss gains as those who, by the standards of recording and valuation, to be allocated directly to equity of the company.

B) The second part is called “Total state of changes in equity,” reports all changes in the equity. The total recognized income and expenses found in the first part of ECPN added variations in equity arising from transactions with the shareholders or owners of the company when acting as such and adjustments to equity due to changes in accounting principles and bug fixes.

Accounting Principles (Annual Accounts)

  1. Operating business: Shall, unless proved otherwise, the management of the company will continue in the foreseeable future, so that the application of the principles and criteria tables not intended to determine the value of net assets for the purposes of transmission global or partial, and the resulting amount in the event of liquidation.
  2. Accrual: The effects of transactions or economic events are recorded when occur, with any exercise to which the annual accounts relate, expenditure and income involving the same, regardless of the date of payment or collection.
  3. Uniformity: Adopted an approach within the alternatives, if any, are allowed, keep it in time and uniformly applied to transactions, other events and conditions to be similar, while not altered the assumptions that motivated their choice.
  4. Prudence: It should be cautious in estimates and valuations to be performed in conditions of uncertainty. Prudence does not justify the valuation of the assets does not meet the true and fair view the accounts should reflect annual. Only benefits be counted until the date of financial close.
  5. No compensation: Except where a rule expressly provided otherwise, can not offset the asset and liabilities or income and expenditure, and will be priced separately the elements of the annual accounts.
  6. Relative importance: It is permissible for non-strict application of certain accounting principles and criteria as the relative importance in quantitative or qualitative change that fact is made to be barely significant, and therefore, do not alter the expression of the true image.

Valuation (Annual Accounts)

The process that assigns a monetary value to each of the elements of the Annual Accounts. To this effect is taken into account the assessment criteria and related definitions is this paragraph. Some of these evaluative criteria are:

  • Historical cost or cost: The cost of an asset is its purchase price or cost of production. The historical cost or cost of a liability is the value that corresponds to the consideration received in exchange for incurring in debt or in some cases, the amount of cash and cash equivalents that are expected to deliver to settle a debt in the ordinary course of business.
  • Fair value: Is the amount by which an asset could be exchanged or terminated an liabilities between stakeholders knowledgeable, engaged in a transaction on arm’s length. In general, fair value is calculated by reference to quoted price in an active market, defined to be one in which fulfill the following conditions: a) The items traded in the market are homogeneous; b) can be found at almost any time buyers or sellers for a particular good or service, and c) prices are known and readily accessible to the public. These prices also reflected actual market transactions, current and regularly produced.
  • Amortized cost: The amortized cost of a financial instrument is the amount which was initially assessed a financial asset or financial liability, less principal repayments which would have been more or less, as appropriate, the party charged in the income profit and loss.
  • Carrying book value or book value: Or in books is the net amount by which an asset or liability is recorded in the balance after deducting in the case of assets, accumulated depreciation and any valuation adjustment accumulated impairment has been reported.

Class of Stock

You can make a classification of different types of stocks listed in the PGC according to the source from them. So we have:

  • Stock or supplies purchased from third parties: We buy abroad, are valued at purchase price and include the following subgroups:
    • 30. Goods
    • 31. Raw materials
    • 32. Other supplies
  • Stocks made or produced by the company: Are valued at production cost and include the following subgroups:
    • 33. Work in progress
    • 34. Semi-finished products
    • 35. Finished goods
    • 36. By-products, waste and recovered materials

Companies have a certain type of stock based on the actual work performed.

Accounting Treatment (Stock)

Tickets bought-in stock are accounted for by shopping expenditure accounts (by its purchase price) and exits through sales income accounts (your price). The annual account will get the profit and loss in these operations gross discounting of net turnover of stock supplies. At the year-end calculate the consumption of goods sold, taking into account changes in stocks of goods in inventory.

Accrued Expenses and Income

Expenses and income recorded in the year closes, corresponding to the next, must comply with the closure of exercise. The accounts of the subgroup 48. Accrual will reflect the amounts to be charged to the subsequent year when adjusted revenue and expenditure are not financial.

Provisions for Business Operations

Supplies are non-financial liabilities, specified in terms of its nature but uncertain as to amount or the timing of the cancellation. Provisions for commercial operations represent current obligations, end of year, for expenses to be incurred after delivery of the goods or services.

Adjustments for Changes in Value

Determined by valuations at fair value to be assigned to Heritage Net. Relate mainly to valuation adjustments of financial instruments and non-current assets and disposal groups held for sale. They also include differences arising from changes in exchange rate to be charged to equity. For accounting for these transactions will be used for the sub accounts 13. Grants, donations and adjustments for changes in value and 8 groups. Expenditure charged to equity, and 9. Imputed income to equity.

The Implementation of Results (Profit or Loss)

The application of results is a statement included in the report, through which managers inform the shareholders of the proposed application of results Base Allocation is made, usually by:

  • The profit or loss.
  • The Remnant.
  • The unrestricted reserves.

The Tax on Benefits

Current tax: Is the income tax expense attributable to the result or directly to equity. That is, the amount that the company meets the tax assessment resulting from tax benefits.

Deferred tax: Expense or revenue is the tax on profits attributable to the result or directly to equity, but due to differences that may exist between results accounting and fiscal results that give rise to assets and / or deferred tax liabilities.

The reversal of differences arising in prior years: a) if it reduces the tax base are negative differences that lead to the cancellation of deferred tax assets. b) If you are an increased tax base, positive signs are differences that lead to the cancellation of tax liability deferred.