An indispensable document for every business at the end of each year is the set of financial statements (financial statements). Because, this is a document with numbers showing the financial position and health of the business. So what is a set of financial statements and what are the important contents?
What is financial statement? #
According to Clause 1, Article 3 of the 2015 Accounting Law
"Financial statement means an economic and financial information system of an accounting unit presented in a form prescribed in accounting standards and accounting regimes."
The set of financial statements usually includes general reports on the owner's assets and business results over each period of the business. In addition, a set of financial statements provides information related to the financial activities of a business such as: assets, liabilities, owner's equity, revenue, profit, cash flow. …
The above regulation shows that the preparation and presentation of financial statements will be in accordance with the provisions of Vietnamese Accounting Standards and the Accounting System. Depending on the size and characteristics of your business, you will choose to apply the appropriate accounting system. The current accounting regimes include the accounting regime for micro-enterprises in Circular 132/2018, small and medium-sized enterprises in Circular 133/2016 and accounting in Circular 200/2014.
For enterprises whose associated parties are parent companies or are subject to Circular 202/2014, in addition to preparing separate financial statements, consolidated financial statements will be prepared.
When does a business prepare financial statements? #
According to Clause 2, Article 29, the 2015 Accounting Law stipulates:
"Financial reporting of the accounting unit is done as follows:
a) The accounting units must make financial statements at the end of the annual accounting period; in cases where it is prescribed by law for the preparation of financial statements according to another accounting period, the accounting units must prepare such accounting periods;
b) The preparation of financial statements must be based on data after closing accounting books. The superior accounting unit must prepare general financial statements or consolidated financial statements based on the financial statements of the accounting units in the same superior accounting unit;
c) The financial statements must be prepared in accordance with the content, method, and presentation consistently between accounting periods; In case the presented financial statements differ between accounting periods, the reason must be clearly stated;
d) Financial statements must be signed by the preparer, chief accountant and the legal representative of the accounting unit. The person signing the financial statement is responsible for the content of the report.”
The details inside the financial statements #
Due to the important nature of financial statements for businesses in particular and tax authorities, state agencies, investors, etc., the set of financial statements is strictly regulated by the state.
According to Clause 1, Article 29, the 2015 Accounting Law stipulates:
"The financial statements of an accounting unit are used to summarize and explain the financial position and operating results of the accounting unit. The financial statements of an accounting unit include:
a) Report on financial situation;
b) Report on operation results;
c) Cash flow statement;
d) Notes to financial statements;
d) Other reports as prescribed by law.”
Based on this regulation, Circulars guiding the accounting regime of micro, medium and small enterprises promulgate the attached detailed financial statement forms. Enterprises shall base themselves on the provisions of the Circular to determine the financial statement form applicable to their enterprises.
Contents of financial statements according to Circular 200/2014/TT-BTC #
In Article 100, Circular 200/2014, the set of financial statements includes the following documents: balance sheet, income statement, cash flow statement and notes to the statement financial statements.
Accounting balance sheet #
Balance sheet is a consolidated financial statement, which generally reflects the total value of existing assets and the source of that asset formation of an enterprise at a certain point in time. The figures on the balance sheet show the entire value of the enterprise's existing assets according to the structure of assets and the structure of capital sources that form those assets. Based on the balance sheet, it is possible to comment and generalize the financial position of the enterprise.
The information presented in the Balance Sheet includes short- and long-term assets, short-term and long-term liabilities and capital sources of the enterprise at a certain point in time.
Business results #
The income statement reflects the position and results of an enterprise's business, including results from its main business and results from its financial and other operating activities.
In other words, the income statement clearly shows the profit/loss results as well as the expenses incurred during a certain period. The objectives of the report include:
- Revenues from the sale of goods and the provision of services;
- Expenses incurred: cost of goods sold, selling expenses, administrative expenses;
- Profit: gross profit, profit before tax and after tax;
- Corporate income tax payable.
Cash flow #
The preparation and presentation of the annual statement of cash flows and the interim accounting periods must comply with the provisions of the Accounting Standard "Cash Flow Statements". Enterprises base on the nature of each transaction to present cash flows appropriately.
This is a report that helps managers and business owners know the cash flows in and out in a specific period, thereby controlling the cash flow. In this report, cash flows are shown in 3 types of activities, including:
- Cash flow due to business activities of the enterprise;
- Cash flow from investment activities;
- Cash flow from financing activities.
Understanding and properly assessing the role of cash flow statements helps businesses plan and adjust cash flows and make timely business decisions.
Explanation of financial statements #
The notes to the financial statements are an integral part of the corporate financial statements used to describe in a narrative or detailed analysis the information and data presented in the Balance Sheet. accounting, income statement, statement of cash flows as well as other necessary information as required by specific accounting standards.
Through the data provided in the report, businesses will analyze and summarize the information accordance with regulations on presentation of financial statements, but may also present other information if the enterprise deems it necessary for a true and fair presentation of the financial statements.
With detailed information about a set of financial statements above, EXPERTIS hopes to have provided businesses with the necessary information about what financial statements are. For any issues that need further discussion or advice, please contact the EXPETIS Consulting Department for support.