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Date: 2019-12-14 Page is: DBtxt001.php list0300-Financial-Statements-1

Definitions for TrueValueMetrics
Financial Statements

Financial balance sheet. Corporate accountancy uses the balance sheet to describe the state of the organization. The balance sheet describes the financial state of the organization at a given point of time. The balance sheet provides a listing of assets, a listing of liabilities, and shows the difference between the two. Changes in the balance sheet over time are a result of activities in the time period. The net change from one period to the next in the balance sheet is the same as the net of revenue and cost or profit in the activity report. The net change in the balance sheet from the beginning of the period to the end of the period is the same as the net result reported in the activity statement. The assets and liabilities of a balance sheet are accounted for at their cost ... reflecting the double entry of cash used equals asset acquired ... and liability acquired will be satisfied by cash paid. The listing of assets and liabilities can be in summary or detailed.

Activity reporting ... profit and loss / income and expenditure / etc. The activity report ... the profit and loss account ... describes the operations of the organization for a specified period of time and the relationship of revenue to cost and therefore profit. There are innumerable formats for activity reports ... and many different names. They may be prepared with a lot of detail or be very much summarized. To a great extent the public and external stakeholders get summary reports and internal managers and staff work with reports at the appropriate level of detail. The data contained in activity reports that are usually hidden from external view would serve very well to improve transparency ... but few corporate organizations embrace this.

Integration of balance sheet and activity reporting. This integration of balance sheet and activity statement comes about because of the double entry characteristic ... and provides a powerful way of understanding a lot about an organization without needing to know everything about the organization. This concept underlies the ideas of balance sheet, operating statement and the relationship they have to each other ... specifically that the the net change in balance sheet value between two dates equals the income from the operating statement between these two dates. Corporate accountancy uses both balance sheet and an activity report to describe the organizations performance. The balance sheet describes the financial state of the organization at a given point of time and the activity report ... the profit and loss account ... describes the results of operations of the organization for a specified period of time. The net change in the balance sheet from the beginning of the period to the end of the period is the same as the net result reported in the activity statement.

Cash flow statement. A cash flow statement is similar to an activity statement but has a focus only on those transactions that have a cash impact. A cash flow statement is a clarifying presentation that shows the way cash has been used, and how cash has been acquired. A cash flow statement repeats much of what is in the P&L statement, excluding transactions that have no cash impact and including transactions that have impact on cash but not on the calculation of profit. For example:

  • Depreciation has an impact on profit reporting, but not on cash.
  • Financing has an impact on cash but not on profit.
  • Changes in level of inventory have an impact on cash, but not on profit. Use of inventory in cost of sales, has an impact on profit.
Notes to Accounts. Good accountancy reports based on sound accounting principles are usually clear, but there are times when more explanation is needed. Notes are an integral part of a set of accounts. In recent times, these notes have become very complex, and it is not at all easy to understand the impact of the explanations have on the results being reported.



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TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative. It has been funded by family and friends plus donations from well wishers who understand the importance of accountability and getting the management metrics right. TVM is a 'big idea' that has the potential to be a game changer leveling the playing field so the wealth and power is shared on a more reasonable basis between people who work for a living and those that own the economy and the levers of power. In order to be effective, it cannot be funded in the conventional way with a for profit business plan, but absolutely must remain an open access initiative.
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