Welcome back, my friends.
Now we're going to discuss a bit about accounting reports.
Do you remember that we spoke in the previous lessons about accounting reports.
It started with a balance sheet, income statement and cash flow.
Just for you to remember, balance sheet, it shows,
like a picture of the company in a certain time.
For example, if you see assets and liabilities,
what's the difference between assets and liabilities?
Asset are considered to be all right and
a company must own or control to conduct its business.
And liabilities,
it's just obligation of the company inquires to also conduct its business.
Why assets should be absolutely equal to liabilities,
that's why it called balance sheet.
In a nutshell, if I'm going to say assets increase,
that means liabilities should increase as well.
If assets decrease, liabilities should decrease as well.
It seems quite simple for us, but
this is quite important, when you gotta discuss about working capital.
For example, if assets increase, we have said that liabilities increase, right?
But take it for instance, for example, if average collection period increased,
that means clients, account clients, will increase.
If assets increase and liabilities increase, what does that mean?
If you give more collection period to your clients, you're going to need cash.
How cash?
You're going to need to increase loans.
You have to increase capital market's instruments
to get cash to finance your asset.
So it's quite important to understand when you're going to discuss
change in working capital.
But for now, we're just going to talk about balance sheet.
I think it's pretty much clear I want to discuss balance sheet.
We have assets, liabilities, assets should be equal to liabilities, always match.
Assets increase, liabilities increase, assets decrease, either, or
the assets should decrease or all the liabilities should increase.
And then you have income statement, income statement
is also part of financial statement, and account of reports of the company.
But it's a little bit different than a balance sheet.
Why? Because financial statement,
what you call income statement is like a movie.
It shows all performance of a company during, for example, a year.
Total sales, cost of a goods sold, gross profit,
administrative expense, operation expense, and
then you have depreciation, operating income, net financial expense.
So we're going to show net profit, margin, operating margin, all this stuff.
What happen during the year?
Which is different from a balance sheet.
A balance sheet just shows the financial position of the company in one day,
mainly, for example, December 31st of that year.
That's a picture of the company, it's different for income statement.
Income statement is like a movie,
it shows what the company did during that period of time.
And then if you move on, you're going to have another financial statement that we
call cash flow statement.
What's cash flow statement?
All of them, all of them, are important, all of them.
Are important because you cannot have income statement.
You cannot have balance sheet without have cash flow statement.
Because obviously if cash is part of your balance sheet,
you need to have a cash flow statement to show how cash behave during that year.
So that's why you have what you say cash flow statement is also a movie about
what happened to your cash position during that year.
How many or how much cash outflow you incurred or
how much cash inflow or outflow.
What's the reason you lost cash, what's the reason you gained cash?
It's due to operating activities or due to higher indebtedness or
due to lower or higher capital expenditure, investment.
So everything impacts all your financial statement and
accounting reports of a company.