The Statement of Financial Position (Balance Sheet)

Reports the financial position (assets, liabilities, and shareholders equity) of an accounting
entity at a point in time.
The Nestle Group name of entity
Statement of Financial Position
At December 31, 2012
in millions of Swiss francs
Assets
- Cash
- Land
- Plant and equipment
- Prepayments
- Inventories
- Trade receivables
- Investments
- Intangible assets
- Other assets
- Total assets
Liabilities
- Trade payables
- Short-term borrowings
- Income taxes payable
- Accrued liabilities
- Long-term borrowings
- Provisions
- Other liabilities
- Total liabilities
Shareholders Equity
- Share capital
- Retained earnings
- Other components
- Total shareholders equity
- Total liabilities and shareholders equity

The Income Statement

Reports the revenues less the expenses of the accounting period

Revenues Expenses
= Profit

The Nestle Group

Income Statement
For the Year Ended December 31, 2009
(in thousands of CHF, except for EPS)
Revenues
- Provision of services
- Sale of goods
- Rental of property
- Other income
- Total Revenues

Even sales promised to

pay in the future counts
toward sales revenue

Expenses
- Cost of sales/goods sold
- Depreciation
- Distribution expenses
- Marketing and administrative expenses
- Research and development expenses
- Other expenses
- Interest expense
- Total expenses
- Profit before income taxes
- Income tax expense
- Profit for the year
- Earnings per share

Statement of Changes in Equity

Reports all changes to shareholders equity during the accounting period.

Beginning retained earnings + Profit Dividends

= Ending retained earnings

The Nestle Group

Statement of Changes in Equity
For the Year Ended December 31, 2009
(in millions of CHF)

Balance as at Jan 1, 09

Share Capital
6,266

Profit for the year

Distribution of dividends
Decrease in share capital
Other comprehensive
Income
Other changes, net
Balance as at Dec. 31, 09

(18)

Retained Earnings
58,646

Other Components

Statement of Cash Flows

Reports cash inflows and outflows that are related to operating, investing, and financing
activities during the accounting period.
The Nestle Group
Statement of Cash Flows
For the year ended December 31, 2006
(in millions of CHF)
Cash flows from operating activities
Cash collected from customers
Cash paid to trade suppliers
Cash paid to employees
Cash paid for general and administrative expenses
Cash paid for interest
Cash paid for taxes
Net cash flow from operating activities
Cash flows from investing activities
Cash paid to purchase property, plant, and equipment
Cash paid to purchase intangible assets
Cash received for sale of property, plant, and equipment
Cash paid to purchase businesses
Cash received for sale of businesses
Cash received from other investing activities
Net cash flow used for investing activities
Cash flows from financing activities
Cash paid for dividends
Cash paid to repurchases issued share capital
Cash received from long-term borrowings
Repayment of long-term borrowings
Repayment of short-term bank borrowings
Cash paid for purchase of short-term investments
Cash paid for other financing activities
Net cash flow used for financing activities
Net decrease in cash during the year
Cash at beginning of year
Cash at end of year

Notes to Financial Statements

1. Provides descriptions of the accounting rules applied in the companys statements
2. Presents additional detail about a line on the financial statements
3. Presents additional financial disclosures about items not listed on the statements
themselves
Determining a Purchasing Price Price/Earnings ratio
A high P/E ratio means that investors have confidence in the companys ability to produce
higher profits in future years.
P/E Ratio = Market Price / Earnings per share (EPS)
Market (Purchase Price) = P/E ratio x EPS

Identify the role of International Financial Reporting Standards (IFRS) in determining the
content of financial statements.
- Effective communication means that the recipient understands what the sender
intends to convey
- Also need to know that the amounts reported in the statements fairly represent
what is claimed
- Decision makers need to understand the measurement rules applied in computing
the numbers on the statements
Why are accounting stands important to managers/external users?
- Companies incur the cost of preparing the statements and bear the major economic
consequences of their publication
- Consequences include:
a) changes to the selling price of a companys share
b) changes to the amount of bonuses received by management and employees
c) loss of competitive advantage over other companies
Steps to ensure accuracy of records
1. Develop and maintain a system of internal controls over both the records and the
assets of the company
2. Hire outside independent auditors to attest to the fairness of the statement
presentations
3. Form a committee of the board of directors to oversee the integrity of these two
safeguards
- Required of all Canadian companies with publicly traded shares
Audit Report: describes the auditors opinion of the fairness of the financial statement
presentations and the evidence gathered to support that opinion
Audit: an examination of the financial reports to ensure that they represent what they claim
and conform with International Financial Reporting Standards

Number of owners
Legal status of entity
Responsibility of
owners for debts of
business entity
Accounting status

Sole Proprietorship
One owner

Partnership
Two or more owners

Corporation
Many owners

Not separate from

that of its owner
Unlimited legal
liability

Not separate from

that of its owner(s)
Unlimited legal
liability

Separate legal entity

Owners liability is
limited to their
investment
Each entity is separate from its owner(s) for accounting purposes

Accounting firms usually render 3 types of services:

1. Assurance Services
- Independent professional services that improve the quality of information, or its
context, for decision makers
- Most important assurance service performed by accountants in public practice:
financial statement auditing
- Audits purpose: lend credibility to financial reports
- Other areas of assurance services: integrity/security of electronic
commerce/reliability of information systems

2. Management Consulting Services

- Usually accounting-based
- Encompass activities such as:
a) Design and installation of accounting, data processing, and profitplanning/control systems
b) Financial advice
c) Forecasting
d) Internal controls
e) Cost-effectiveness studies
f) Operational analysis
3. Tax Services
- Include both tax planning as a part of the decision-making process and the
determination of the income tax liability