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Wednesday, 16 July 2014

A Story About Financial Reports

                             http://storiestastegood.com/2013/05/23/stories-stories-everywhere-and-not-a-drop-to-drink/

Firstly,  imagine you as a company.

You now have a house and a car.

These are your ASSET.

The car's value will decrease every year,

this is called DEPRECIATION.

However, you do not buy this house and car by cash.

You borrows the money from bank.

This borrowing is your LIABILITY.

Before you can work to earn money,

You need to survive,

So you need to find someone that can support your livings.

Your parents are your shareholders.

The money they support you is SHARE CAPITAL which  is recorded under EQUITY.

ASSET, LIABILITY & EQUITY are recorded in BALANCE SHEET.



Now you are working,

the income you earned is REVENUE.

Every day you need to spend some money for living so that you can continue working,

These are called EXPENSE.

Sometimes you go out to eat but you forget to bring money,

So you tell the tauke that you will pay next time,

this is called PAYABLE.

Sometimes you go out with your friends,

you help your friend to pay first because your friend does not bring enough money,

this is called RECEIVABLE,

If your friend do not pay you later,

this is called  BAD DEBT WRITTEN OFF.

If you already know your friend will not pay you,

This is called PROVISION FOR BAD DEBT.

Your income after deduction for all the expenses is called PROFIT.

All of the things above which happen every year are recorded in INCOME STATEMENT.



Finally you have some money left after daily expenses,

You think you want to repay your parents.

So you give some allowances to your parents,

This is called DIVIDEND.

After working for many years,

You have accumulated some money,

this is called RETAINED EARNINGS.

 You want to buy a house for your parents ,

This is called BONUS ISSUE.

All of these above are recorded in CHANGE OF EQUITY STATEMENT.



However, although you earn a lot,

But you find that your money disappear  without reason,

So you decide to find out what is happening.

 You record every money that you get and expense.

This is called CASH FLOW STATEMENT.

  

Reading until here, you find that a company is just like a person. It is easier to learn FINANCIAL REPORTS by good imagination. So have a enjoyable learning journey.

Further Info:  
"An Introduction to Financial Reports"

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