The purpose of financial statements

Providing information regarding financial position, performance and changes in the financial
position of an entity that benefits a large number of users in decision making.
1. 1. Financial position, performance, and changes in financial position
Economic decisions taken by users of financial statements require an evaluation of the
entity's ability to generate cash (and cash equivalents) and the time and capacity of the
results. This ability ultimately determines, for example, the ability of payments to
employees and suppliers, ability to pay interest, repayment of loans and distribution of
income to owners.
Information on entity performance, especially profitability, is needed to assess
potential changes in economic resources that may be controlled in the future.
Information on changes in the entity's financial position, is useful for assessing
investment activities, funding, and operations during the reporting period.
2. Additional schedule notes
Reports may contain additional information that is relevant to the needs of the balance
sheet user and the loss report. It may also include disclosures about risks and
uncertainties that affect the entity and any resources and obligations not included in
the balance sheet.

Basic assumption
1. Basic Accruals
Giving transactions to users not only uses transactions in the past that involve cash
receipts and payments, but also future cash payment obligations and resources that
represent cash received in the future.
2. Business continuity
Financial statements are usually prepared on the basis of the assumption of the
business continuity of the entity and will continue its business in the future

Qualitative Characteristics of Financial Statements

1. Understandable
Users are assumed to have adequate knowledge of economic and business activities,
accounting, and the willingness to learn information with reasonable diligence.
2. Relevant
Information has quality that is relevant if it can influence the economic decisions of
users by helping them evaluate past, present and future events, affirming or correcting
the results of past user evaluations.
 Materiality
Information is seen as material if negligence to include or error in recording
such information can affect the user's economic decisions taken on the basis of
financial statements.
3. Reliability (reliable)
Information may be relevant but if the nature or presentation is unreliable, the user of
the information can potentially be misleading.
• Honest presentation
Information must honestly describe other transactions and events that should
be presented or reasonably expected.
• Substance outperforms form.
• Neutrality
 Information must be directed to the general needs of users.
• Healthy considerations
Financial report compilers sometimes face uncertainties in certain events and
circumstances that are recognized by revealing the nature and level and by
using prudence in preparing financial statements.
• Completeness
Information in financial statements must be complete within the limits of
materiality and costs.
4. Can be compared
Users must be able to compare the entity's financial statements between periods to
identify trends and financial performance.
• Relevant and reliable information constraints
o On time
o Balance between costs and benefits
o Balance between qualitative characteristics.
• Fair presentation

Elements of financial statements

1. Financial position
a) Assets
b) Liabilities
c) Equity
Future economic benefits that are shuddered in assets are the potential of these assets
to contribute, directly or indirectly, cash flows and cash equivalents to the company.
Future economic benefits that are realized in assets can flow into the entity in several
ways. For example, assets can:
a) Used either alone or with other assets in producing goods and services sold by the
entity
b) Exchange with other assets
c) Used to settle liabilities, or
d) Shared with company owners
2. Performance
The elements of income and expenses are defined as follows:
a) Income, is an increase in economic benefits during an accounting period in the form
of income and addition of assets or obedience of liabilities resulting in an increase in
equity that does not come from the contribution of investors.
b) Expenses, decreases in economic benefits during one accounting period in the form of
outflows or reduced assets or the occurrence of liabilities resulting in a decrease in
equity that does not involve the distribution to investors.
3. Income
4. Expenses
5. Adjustment of capital maintenance

Recognition of elements of financial statements

Posts that meet the definition of an element must be recognized if:
 a. It is possible that economic benefits are related to the post from or into the
company
b. The post has a value or cost that can be measured reliably.
Recognition of elements of financial statements
1. The probability of future economic benefits
2. Measurement constraints
3. Recognition of assets
4. Recognition of liabilities
5. Income recognition
6. Load recognition

Measurement of elements of financial statements

The various basic measurements are as follows:
a) Historical cost
b) Current cost
c) Realization / settlement value
d) Present value

The concept of capital and capital maintenance

1. Concept of capital
The choice of the concept of capital that is appropriate for the company must be based
on the needs of the users of financial statements
2. The concept of capital maintenance and profit determination
Two capital maintenance concepts:
a. Maintenance of financial capital
b. Maintenance of physical capital