The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, LtdThe preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd
General overview of financial statements and financial statements
1.1.1 The basics of financial statements
Accounting is the process of identifying, measuring, and communicating economic information, enabling informed judgments and decisions by users, as defined by The American Accounting Association Primarily focused on financial data expressed in monetary terms, accounting serves as a vital tool for both profit-seeking businesses and not-for-profit organizations By facilitating measurement and communication, accounting provides essential information that supports informed decision-making for its users.
Accounting information is the information that arises from business transactions Once identified, the information is then classified and recorded, and it eventually finds its way into various reports.
The process of providing information
1) Identify stakeholders (users of accounting information): usually, the users of accounting information are divided into two factions:
Internal users: includes owners, managers, employees
External users: includes customers, creditors, government
2) Assess stakeholders’s informational needs: each kind of user has a different motives and objectives, therefore holds different needs of accounting information.
Owners: need to assess how well their business is performing. They are also interested in knowing how risky their business is and can be
Managers: need accounting information to plan, monitor and make business decisions.
Employees: need accounting information to get a better understanding of the company’s business, so that they may have proper plans for future development.
Investors: need accounting information to know how well their investment is performing, therefore decide should they keep investing or stop.
Lendors: need accounting information to assess their credit worthiness, their ability to pay back loan.
Suppliers: need accounting information to assess the credit- worthiness of its customers before offering goods and services on credit.
Tax authorities require accounting information from suppliers and consumers to detect potential tax evasion They periodically perform audits on the tax returns submitted by businesses to ensure the accuracy of the information against the underlying accounting records.
3) Design the accounting information system to meet stakeholders’s needs.
An accounting information system (AIS) is essential for businesses to efficiently collect, store, manage, and report financial data It serves various stakeholders, including accountants, consultants, business analysts, managers, CFOs, auditors, regulators, and tax agencies, facilitating informed decision-making and compliance.
4) Record economic data about business activities and events.
5) Prepare accounting report for stakeholders.
1.1.1.2 Definition and objectives of financial reporting a) Definition
Financial reporting involves the disclosure of an organization's financial results to stakeholders and the public, playing a crucial role in transparency This essential function is primarily managed by the controller, often with support from the investor relations officer in publicly held companies Key components of financial reporting include various documents and postings that provide insights into the organization's financial health.
Financial statements, which include the income statement, balance sheet, and statement of cash flows
Accompanying footnote disclosures, which include more detail on certain topics, as prescribed by the relevant accounting framework
Any financial information that the company chooses to post about itself on its website
Annual reports issued to shareholders
Any prospectus issued to potential investors concerning the issuance of securities by the organization
Financial statements are essential documents that reflect a company's business activities and financial performance They are frequently audited by government agencies, accountants, and firms to verify their accuracy for tax, financing, and investment purposes.
Financial reportings provide information about the reporting entity that is useful to existing and potential investors, lendors and other creditors in making decisions about providing resources to the entity.
The information provided about financial performance helps existing and potential investors, lenders and other creditors to understand the return the entity has produced on its economic resources.
Investor decisions regarding the buying, selling, or holding of equity and debt instruments are influenced by the expected returns from these investments, such as dividends, principal and interest payments, or increases in market prices.
Decisions by ledors are about providing or selling loans and other forms of credit depend on the principal and interest payments of other returns that they expect.
The information must reflect the effect on performance of changes in market prices and/or interest rates.
1.1.1.3 Requirements of financial statements presentation
According to Article 101 of circular 200/2014/TT-BTC about
“Requirements for information presented in financial statements”, the following are requirements for information presented in financial statements:
1 Information presented in the financial statements must be recorded honestly and reasonably the financial situation, trading situation and income of enterprises To ensure honesty, the information must be complete, objective, unmistaken.
Complete information is essential for users of financial statements to grasp the nature, forms, and risks associated with transactions and events Additionally, certain items require a comprehensive presentation that includes details about their quality, as well as the factors and circumstances that may influence this quality and nature.
Objective presentation refers to the unbiased selection and description of financial information It is essential for maintaining neutrality, ensuring that the presentation does not emphasize, diminish, or otherwise manipulate the financial data This approach guarantees that the impact of the financial information remains accurate and unaltered, serving the best interests of users of financial statements.
Accurate reporting requires a comprehensive description of the phenomenon and meticulous selection of information, but it does not guarantee complete precision in every aspect For instance, estimating unobservable costs and values poses challenges in determining their correctness An estimate is deemed honest when the estimated value is clearly articulated, the nature and limitations of the estimation process are explained, and appropriate figures are accurately selected.
2 Financial information must be appropriate to help users of financial statements to predict, analyze and make economic decisions.
3 Financial information must be presented fully in all important respects Information is considered to be important in case information is not sufficient or inaccurate information may affect the decisions of users of financial information of the reporting unit Materiality shall be based on the nature and magnitude, or both, of the relevant items presented in the financial statements of a particular unit.
4 Information must be verifiable, timely and understandable.
5 Financial information must be presented consistently and must be comparable among the accounting periods and enterprises.
A balance sheet is a financial statement that outlines a business's assets, liabilities, and equity at a specific moment, reflecting the balance of income and expenses from the previous period.
* Nature and purpose of balance sheet
The purpose of the balance is to set out the financial position of a business at a particular point in time.
It gives a snap shot of the assets, liabilities and equity position of the entity at a particular point in time.
It sets out the assets of the entity on the one hand, and the claims against it on the other.
The balance sheet can be presented in two formats: account format and report format In the account format, assets are displayed on the left side, while liabilities and owners' equity are shown on the right side, resembling a T account It is essential that the total assets on the left side equal the combined total of liabilities and owners' equity on the right side, ensuring accuracy in the financial representation.
Picture 1: Example of account format
The vertical format is the most commonly used report format, where balance sheet elements are arranged vertically In this layout, the assets section is positioned at the top, followed by the liabilities and owners' equity sections below it.
ASSETS Codes Notes Closing balance Opening balance
IV Other short-term assets 150 965,298,743 666,140,218
II Other long-term assets 260 280,293,097 645,392,661
Picture 2: Example of vertical format
In vertical format, the balance sheet has 5 columns:
Columns 2: Code of items Column 2 is used to sumưup in preparation of combined financial statements r consolidated financial statements.
Columns 3: Notes of items represented in the notes to the financial statements
Columns 4: Ending balance Figures recorded in column 4 are based on related account closing balance in general ledger.
The beginning balance in column 5 of the financial statement for this year is derived from the figures recorded in column 4 for the same items in the previous year's financial statement.
Assets = Liabilities + Owner's (Stockholders') Equity
Financial statements preparation in enterprises
1.2.1 Statement of financial position (balance sheet) preparation
Guidance for financial position preparation is stated in article 112 of Circular 200/2014/TT−BTC
1.2.1.1 Basis for preparation of the Balance Sheet
The information which is used in preparation of the balance sheet was based on:
− Detailed accounting books, cards on detailed summary sheet;
− The balance sheet of previous accounting year (to present the first column).
1.2.1.2 Content and methods of setting up items in balance sheet of enterprises to meet the assumption of continuous operation (Form B01-DN)
− “Opening Balance” column: Based on the closing balance column of the previous year balance sheet to fill in the items, the column does’s change during the period.
− “Closing Balance” column: Based on the closing balance of the detailed accounts at year end declaration The items will be recorded as follow:
Debit balance of account will be recorded in to corresponding assets section.
Credit balance of account will be recorded into corresponding equity section.
− In case of items which are related to many other accounts, the ending balancec of relevant accounts will be collected to record.
− Accounts such as 129, 139, 159, 214, 229, in which has ending balance, will be record in negative value with form (− value) in the corresponding items in assets section.
− Accounts such as 412, 413, 421, if ever record in equity section, the debit balance will still be recorded in the equity section, but in negative value with form (−value).
− Debit balance and credit balance in “Trade receivables””, as well as debit balance and credit balance in “Trade payables” can not offset each other.
1.2.2.1 Basis for preparation of the income statement
The preparation of cash flow statement is based on:
- Based on income statement of previous year.
- Based on general accounting books and detailed accounting books in period used for accounts from 5 to 9.
1.2.2.2 Contents and methods of preparation of item in income statement
Revenue from sales of goods and services (Code 01):
This item captures the total revenues generated from the sales of goods and finished products, investment real estate, service provision, and other income during the reporting year for enterprises The figures reflect the accumulated amounts recorded on the Credit Side of Account 511, which pertains to "Revenue from sales and service provisions" for the reporting period.
When superior units make general reports with subordinate units without legal status, revenues from sales and service provisions arising from intra-group transactions are all excluded.
- This item does not include indirect taxes, such as VAT (including VAT paid under subtraction method), excise tax, export taxes, environmental protection taxes and other indirect taxes and fees.
This item reflects the total decrease in revenue for the year, encompassing trade discounts, sales allowances, and sales returns within the reporting period The figures recorded represent the accumulated amounts on the Debit side of Account 511 "Revenue from Sales and Service Provisions," which correspond to the Credit side of Account 521 "Revenue Deductions" during the same period.
This item excludes indirect taxes and fees that businesses are not eligible to receive, which are payable to the state budget These amounts are recorded as a decrease in accounting books under account 511, as they represent essential collections for the State and are not part of the revenue structure or considered revenue deductions.
Net revenue from sales of goods and services (Code 10):
This item captures the total revenues generated from the sale of goods, finished products, investment real estate, and service provisions, while also accounting for deductions such as trade discounts, sales allowances, and returns during the reporting period This information serves as the foundation for calculating the income from enterprise operations, represented by the formula: Code 10 = Code 01 - Code 02.
Costs of goods sold (Code 11):
This item captures the total expenses related to goods, investments in real property, production costs of sold finished goods, direct costs of completed services, and any other costs that affect the cost of goods sold during the reporting period The figures reflect the accumulated amounts on the credit side of Account 632 "Cost of Goods Sold," corresponding to the debit side of Account 911 for the same period.
When superior units make general reports with subordinate units without legal status, revenues costs of goods sold arising from intra-group transactions are all excluded.
Gross profit from sales of goods and services (Code 20):
This indicator measures the difference between net revenue from sales of goods, finished products, investment real estate, and services provided, and the cost of goods sold during the reporting period It is calculated using the formula: Code 20 = Code 10 - Code 11.
This item captures the net financial income generated by enterprises during the reporting period It reflects the accumulated amounts recorded on the Debit side of Account 515 "Financial Income," which correspond to the Credit side of Account 911 "Income Summary" for the same period.
When superior units make general reports with subordinate units without legal status, financial income arising from intra-group transactions are all excluded.
This item captures the total financial income for enterprises, encompassing loan interest payable, copyright expenditures, and joint-venture expenditures incurred during the reporting period The recorded figures represent the accumulated amounts on the Credit side of Account 635 "Financial Expense," which correspond to the Debit side of Account 911 "Income Summary" for the same period.
When superior units make general reports with subordinate units without legal status, financial expenses arising from intra-group transactions are all excluded.
This item records the cost of accrued interest included in financial expenses during the reporting period Figures recorded in this item are based on detailed accounting books of Account 635.
This item captures the total selling expenses related to goods and services provided during the period The figures reflect the total amounts recorded on the credit side of Account 641.
"Selling expense" corresponding to the Debit side of Account 911 "Income summary".
This item captures the total administrative expenses of the enterprise for the reporting period It reflects the total amounts recorded on the credit side of Account 642, "Enterprise Administrative Expense," which correspond to the debit side of Account 911, "Income Summary."
This item reflects the income generated by enterprises during the reporting period It is determined by calculating the gross profit from sales and service provisions, adding financial income, and subtracting financial expenses, selling expenses, and administrative expenses incurred during the same period The formula is represented as Code 30 = Code 20 + (Code 21 - Code 22) - Code 25 - Code 26.
This item records other income incurred in the period Figures recorded in this item are based on the total arising amounts of Debit side of Account
711 "Other income" corresponding to the Credit side of Account 911 "Income summary" in reporting period.
In the context of liquidating or selling fixed assets and investment real property, the recorded figures represent the differences between the amounts received from these transactions and the net book value of the assets, after accounting for liquidation expenses.
When superior units make general reports with subordinate units without legal status, other income arising from intra-group transactions are all excluded.
This item captures the total other expenses incurred during the reporting period, reflecting the amounts recorded on the credit side of Account 811 "Other Income" and corresponding to the debit side of Account 911 "Income Summary."
In the context of liquidating or selling fixed assets and investment real property, the recorded figures represent the difference between the amounts received from these transactions and the net book value of the assets, after accounting for liquidation expenses.
When superior units make general reports with subordinate units without legal status, other expenses arising from intra-group transactions are all excluded.
Profit from other activities (Code 40):
This item records the difference between other income (after deduction of VAT payable under subtraction method) and other expenses incurred during the reporting period Code 40 = Code 31 - Code 32.
This item reflects the total profit generated by enterprises in the reporting year, prior to the deduction of enterprise income tax expenses from trading and other operations incurred during that period The calculation is represented by the formula: Code 50 = Code 30 + Code 40.
Current corporate income tax expense (Code 51):
Financial statement analysis in enterprises
PRACTICAL SITUATION OF FINANCIAL STATEMENTS
PREPARATION AND ANALYSIS AT DUYENHAI TRANDING AND MANUFACTURER, LTD
2.1 Overview of Duyenhai Trading and Manufacturer, Ltd
2.1.1 Foundation and development of the company
2.1.1.1 General information about the company
Full name: DUYENHAI TRADING AND MANUFACTURER, LTD
Headquarter: No.189 road to Dinh Vu, Dong Hai Ward, Hai An District, Hai Phong city, Viet Nam.
DuyenHai Trading and Manufacturer Company Limited, established in Vietnam, is registered under Investment Certificate No 0200644957, issued by the Department of Planning and Investment of Hai Phong City on July 1, 2005, with its 14th modification recorded on April 28, 2017.
- Warehousing and storage of goods
- Wholesale and retail of cars and other motor vehicles
- Maintenance, repair of automobiles and other motor vehicles
- Agents, brokers, auction Details: Consignment agent (excluding securities agents)
- Repairing prefabricated metal products Details: Container repair