Financial statements

In this lesson

1. 0:00 Introduction to financial statements
2. 0:40 Five key elements of financial statements
3. 2:05 Understanding assets, liabilities and equity
4. 3:51 Statement of profit and loss explained
5. 4:45 Milan example: statement of profit and loss
6. 7:06 Statement of financial position structure
7. 7:38 Milan example: statement of financial position
8. 9:01 Statement of changes in equity
9. 10:35 Statement of cash flows overview
10. 11:14 Notes to financial statements

About this lesson

This session covers the statement of profit and loss, statement of financial position, statement of changes in equity, statement of cash flows, and supporting notes, showing you how each document tells a different part of your organisation's financial story. Understanding these formats is essential for FA, FR, and all subsequent accounting papers, as they form the foundation of financial reporting across ACCA and CIMA qualifications. The five elements are the building blocks you need to master first. An asset is something you control that will generate future benefit. A liability is a present obligation from a past event. Equity is what remains after you subtract liabilities from assets. Income increases assets or decreases liabilities (excluding owner contributions), while expenses do the opposite. These definitions appear throughout financial reporting, so getting them clear now saves confusion later. The statement of profit and loss shows your organisation's total income minus total expenses over a period—usually a year. Expenses are grouped by function (cost of sales, distribution, admin) to make the statement readable, and the bottom line shows whether you've made a profit or loss. The statement of financial position, by contrast, is a snapshot at a single date showing everything you own (assets), everything you owe (liabilities), and what's left (equity). Crucially, the statement of profit and loss is incremental—it resets each year—while the statement of financial position is cumulative, building up balances over time. The statement of changes in equity reconciles how your equity balances moved from the start of the year to the end, typically showing opening balances, profit from the statement of profit and loss, dividends paid, and closing balances. The statement of cash flows tracks actual cash in and out. Finally, notes to the financial statements provide the detailed analysis and accounting policy disclosures that support the summary figures in the main statements. Learning these formats now will help you read and prepare financial statements with confidence throughout your studies.

Duration: 12m