The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd

PREFACE 1. The urgency of the study In the current situation, our country is in the process of economic development and integration according to the development of the world and the trend of the times. Economic integration and development is an opportunity and also a great challenge for the countrys economy in general and in particular domestic enterprises in particular. This requires each enterprise to make efforts, maximize its advantages, as well as overcome the weaknesses that still exist in order to integrate with the world economy. In the era where science and technology are advancing and upgrading by hour, a single decision can decide the fate of an entire business entity. To be able to make a right decision, the leaders must have information about company’s current status presented clearly and faithfully, so that no items shall be mistaken. Having a good accounting information system also allows director to manage the company’s operation so that if any problem arises, they can interfere and solve the problem in no time. But the accounting information system is too complicated for users such as creditors, lendors, and employees… to understand, so a need for a compact but fully and clearly –presented occurred, and financial statements was made. Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about its future direction of the companys stock price. Financial statements are the main source of financial information for most decision makers. On the base of practicing thesis and theories of preparing and analysing financial statements which had been studied at the academy and understanding practical situation at the company, under guidance and support of supervisor, MSc Nguyen Ba Linh and the company’s employees, I had achieved some success in researching company’s practical operation. This is also an opportunity given to us by the academy to strenghthen the knowledge, as well as develops suitable skills. Based on that, I decided to choose the topic of “The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd” to make my graduation thesis.

MINISTRY OF FINANCEACADEMY OF FINANCE

Major: Business Accounting

Supervisor: MSc Nguyễn Bá Linh

HÀ NỘI, Year 2020

LETTER OF DECLARATION

I hereby declare that this thesis the results of my own research andhas never been published in any work of others During the process of makingthis thesis, I have seriously taken research ethics; all findings of this projectare results of my own research and surveys; all references in this project areclearly cited according to regulations.

I bear full responsibility to the fidelity of the number and data andother contents of my work.

Hanoi,(day)… … (month)… … … (year) 20…

Student

(Signature and Full name)

Firstly, I am deeply indebted to my supervisor MSc Nguyen Ba Linhwhose help, stimulating suggestions and encouragement helped me all thetime of research for and writing of this thesis.

I also want to thank Duyehai Trading and Manufacturer, Ltd for givingme permission to commence this thesis in the first instance, to do thenecessary research work and to use departmental data.

I have furthermore to thank the Vice Director and Chief Accountant aswell as all seniors at Duyenhai Trading and Manufacturer, Ltd who gave andconfirmed this permission and encourage me to go ahead with my thesis.

Friends from Accounting Faculty also supported me in my thesis; I wantto thank them for all their support, interest and valuable conversations.

Especially, I would like to give my special thanks to my family whosepatient love enabled me to complete this work.

Finally, because of limitation of time and knowledge, mistakes areunuavoidable, so I wish to have more opportunities I also wish to receivemore contribution and suggestions to make my thesis better.

In the modern economic, Viet Nam business organizations face not onlyopportunities but also great chanllenges In order to catch up with the progressand avoid being “eliminated”, all organizations are expected to alwaysperfecting and developing their managing system, especially on the aspect ofaccounting, for having a good accounting system plays an important role inmaking decisions and policies If by any chance a certain item on the reports(including balance sheet, cash flow statement, income statement) wasmispresented, any decisions based on that result may become unsuitable,which will lead to failure Therefore, my thesis with the topic “Thepreparation and analysis of financial statements in Duyenhai Trading andManufacturer, Ltd” will point out the importance of financial statements,components of financial statements and analysis of financial statements.

The main content is reflected in three chapters The first chapter is aboutthe general theory of financial statements preparation and analysis inenterprises In chapter 2, by taking a scenario in Duyenhai Trading andManufacturer, Ltd, the thesis focuses on a real practice of preparing andanalyzing their financial statements From that, chapter 3 points out some ofcompany’s strength and weaknesses and suggests some solutions to improvethe preparation and analysis of company’s financial statements.

In conclusion, the thesis has already been complete in comparison wiithproposed objectives and targets in the introduction.

LIST OF DIAGRAMS

2.1 Management mechanism in Duyenhai Trading and

2.2 Accounting system in Duyenhai Trading and Manufacturer

LIST OF TABLES

2.1 Main indicators reflects business results of the companyin 2019

2.8 Overall assessment of company’s debt ratio 93

TABLE OF CONTENT

PREFACE 1Sincerely thanks! 3CHAPTER I 4

GENERAL THEORY OF FINANCIAL STATEMENTS PREPARATION AND ANALYSIS IN ENTERPRISES 4

1.1 General overview of financial statements and financial statements analysis in

1.1.1 The basics of financial statements 4

1.1.1.1 Financial accounting information 4Accounting is the process of identifying, measuring, and communicating economic

information to permit informed judments and decisions by the users of the information, as

defined by The American Accounting Association This information is primalily

financial−stated in money terms Accounting, then, is a measuring and communicating tool used to reflect on the activities of profit−seeking business organizations and not−for−profit organizations As measurement and communication process for business, accounting supplies information that permits informed judments and decisions by users of the data 4

Accounting information is the information that arises from business transactions Once identified, the information is then classified and recorded, and it eventually finds its way into various reports 4

The process of providing information 4

1) Identify stakeholders (users of accounting information): usually, the users of accounting information are divided into two factions: 4Internal users: includes owners, managers, employees 4External users: includes customers, creditors, government 42) Assess stakeholders’s informational needs: each kind of user has a different motives and objectives, therefore holds different needs of accounting information 4Owners: need to assess how well their business is performing They are also interested in knowing how risky their business is and can be 5Managers: need accounting information to plan, monitor and make business decisions 5Employees: need accounting information to get a better understanding of the company’s business, so that they may have proper plans for future development 5Investors: need accounting information to know how well their investment is performing,therefore decide should they keep investing or stop 5

pay back loan 5

Suppliers: need accounting information to assess the credit-worthiness of its customers before offering goods and services on credit 5

Tax Authorities: need accounting information of suppliers and consumers in order to identify potential tax evaders Occasionally, tax authorities conduct audits of the tax returns filed by businesses in order to verify the information with the underlying accounting records 53) Design the accounting information system to meet stakeholders’s needs 5

An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators, and tax agencies 5

4) Record economic data about business activities and events 5

5) Prepare accounting report for stakeholders 5

1.1.1.2 Definition and objectives of financial reporting 6

a) Definition 6

Financial reporting is the financial results of an organization that are released to its stakeholders and the public This reporting is a key function of the controller, who may be assisted by the investor relations officer if an organization is publicly held Financial reportingtypically encompasses the following documents and postings: 6

Financial statements, which include the income statement, balance sheet, and statement of cash flows 6

Accompanying footnote disclosures, which include more detail on certain topics, as prescribed by the relevant accounting framework 6

Any financial information that the company chooses to post about itself on its website 6

Annual reports issued to shareholders 6

Any prospectus issued to potential investors concerning the issuance of securities by the organization 6

Financial statements are written records that convey the business activities and the financial performance of a company Financial statements are often audited by government agencies, accountants, firms, etc to ensure accuracy and for tax, financing, or investing purposes 6

b) Objectives 6

Financial reportings provide information about the reporting entity that is useful to existing and potential investors, lendors and other creditors in making decisions about providing resources to the entity 6

The information provided about financial performance helps existing and potential investors, lenders and other creditors to understand the return the entity has produced on its economic resources 7 Decisions by invetors are about buying, selling or holding euity and debt instruments depend on the returns that they expect from an investment in those instruments, eg dividends, principal and interest payments or market price increase 7 Decisions by ledors are about providing or selling loans and other forms of credit depend on the principal and interest payments of other returns that they expect 7The information must reflect the effect on performance of changes in market prices and/or interest rates 7

1.1.1.3 Requirements of financial statements presentation 7

According to Article 101 of circular 200/2014/TT-BTC about “Requirements for information presented in financial statements”, the following are requirements for information presented infinancial statements: 71 Information presented in the financial statements must be recorded honestly and reasonably the financial situation, trading situation and income of enterprises To ensure honesty, the information must be complete, objective, unmistaken 7- Information is only complete when including all the necessary information to help users of financial statements to understand the nature, forms and risks of transactions and events For some items, the full presentation must also describe more information about the quality, the factors and circumstances that may affect the quality and nature of the items 7- Objective presentation is unbiased selection or description on financial information

Objective presentation must ensure neutrality which do not focus, emphasis or reduce as well as perform other acts to alter the impact of the financial information to become beneficial or unbeneficial for users of financial statements 8- No errors mean no omissions in the description of the phenomenon and no errors in the process of providing reporting information selected and applied No errors do not mean complete accuracy in all respects, for example, estimating unobservable cost and value is difficult to determine to be correct or incorrect The presentation of an estimate is considered to be honest, if the estimated value is described clearly, and the nature and limitation of the estimating process is explained and there is no error in the selection of appropriate figures in the estimate 82 Financial information must be appropriate to help users of financial statements to predict, analyze and make economic decisions 83 Financial information must be presented fully in all important respects Information is considered to be important in case information is not sufficient or inaccurate information may affect the decisions of users of financial information of the reporting unit Materiality shall be based on the nature and magnitude, or both, of the relevant items presented in the financial statements of a particular unit 84 Information must be verifiable, timely and understandable 8

accounting periods and enterprises 8

1.1.2 Types of financial statements 8

1.1.2.1 Balance sheet 8

* Definition of balance sheet 9

Balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period 9

* Nature and purpose of balance sheet 9

The purpose of the balance is to set out the financial position of a business at a particular point in time 9

It gives a snap shot of the assets, liabilities and equity position of the entity at a particularpoint in time 9

It sets out the assets of the entity on the one hand, and the claims against it on the other 9

* Format of balance sheet 9

There are two formats of presenting assets, liabilities and owners’ equity in the balance sheet – account format and report format In account format, the balance sheet is divided into left and right sides like a T account The assets are listed on the left hand side whereas both liabilities and owners’ equity are listed on the right hand side of the balance sheet If all the elements of the balance sheet are correctly listed, the total of asset side (i.e., left side) must be equal to the total of liabilities and owners’ equity side (i.e., right side) 9

10

Picture 1: Example of account format 10The report format (vertical format) is used more frequently In vertical format, the balance sheet elements are presented vertically i.e., assets section is presented at the top and liabilities and owners equity sections are presented below the assets section 10

BALANCE SHEET

As at 31 December 2019

Unit: VND

1 Short-term trade receivables131 137,502,696 33,004,453 2 Short-term loan receivables135 - 1,350,000,000 3 Other short-term receivables136 - 142,109,247

 Refer to additional information provided in a company’s financial statements 20

 Describe the items that are left out of the balance sheet and income statement 20

 Helps to clarify they would cloud the data reported in the financial statements 20

 May also include information regarding future activities that are anticipated to have anotable impact on the business or its activities 20

* Format of financial statements footnotes 20

Notes to the financial statements of a company are shown in three groups: 20

 Structural 20

 Adopted principles 20

 Other related affairs 20

1 How far the accounting standard has been adopted 20

2 The followed principles of accounting and measuring methods 20

3 The helping information of the accounting items presented in financial statements 21

4 Other matters such as contingent liabilities, detailed disclosure of financial and non- financial matters 21

Preparation of adopted principles of accounting 21

1 The basis of preparation of financial statements 21

2 The accounting principles adopted in the preparation of financial statements Besides, for their easy understanding the information regarding who has used and analyzed the methods which have been adopted in measuring money with its historical cost, current cost, realization cost or present cost should be stated in detail Besides, methods adopted in case of; 21

 earning a profit 21

 the merger of business 21

 the joint venture 21

 depreciation or write off of assets 21

 business and geographical affairs 22

 cash and cash equivalent 22

4 Some employees in a year or a particular period 22

1.1.3 The basics of financial statement analysis 22

* Definition of financial statements analysis: 22

Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions to earn income in future These statements include the income statement, balance sheet, statement of cash flows, notes to accounts and a statement of changes in equity (if applicable) Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization 22

* Purpose of financial statements analysis: 22

In an open economy, businesses that want to survive and develop must always backingưup their financial potentials and constantly improve their competitiveness Through the calculation and assestment of financial ratios, financial analysis helps users to have control over all business activities informations, and know the position of the company in the market In the field of business, there must be an honest view of the financial situation of the enterprise as well as its development potential, clearly determining the cause and level of indicators affecting the financial situation From that, we can take advantage of business opportunities and make appropriate financial decisions to maintain and develop the business operation Therefore, financial statements analysis is the concern of many different subjects such as: Board of Directors, investors, shareholders, creditors, customers, managers, even employees themselves Each subject has a different need from the financial statements, uses the indicators and information obtained to make different decisions 23

Financial statements analysis to business’s owner 23

To business’s owner, financial statements analysis has purposes as follow: 23

− Create regular cycles to evaluate management activities in the past period, the implementation of financial balance, profitability, solvency and financial risks during

− Guiding the decisions of the Board of Directors in the appropriate direction to the current situation of the company, such as decisions on investment, financing, profit distribution 23

− Financial statements analysis is the base for financial forecasting 23

− Financial statements analysis is a tool for company’s internal control, management 23

* Financial statements analysis to investors 24

Financial statements analysis helps the investors evaluate the company’s operation through researching financial reports, profitability, risks… 24

Financial statements analysis to the company’s creditors 24

Financial statements analysis for creditors is essential in order to determine clearly the financial status of customers: asset value, debt situation, ability to repay Forecasting on the financial status of customers in the future, forecasting on possible risks affecting customers' ability to repay debts 24

Financial statements analysis to company’s employees 24

Financial analysis helps workers stay on their stable jobs From that belief, they will be able toto focus on the production of the company depending on the work assigned to them 24

Financial statements to Government’s management agencies 24

Government’s management agencies use the financial statements sent by enterprises to analyze the financial situation of enterprises to check and monitor the business situation of enterprises, thereby helping enterprises The agency sets out policies, managing mechanisms and financial solutions suitable to the actual situation of the enterprise, creating a favorable legal corridor environment, contributing to helping businesses improve production efficiency 24

The above issues have shown that analyzing the financial situation of enterprises is very necessary, an indispensable tool for businesses in a market economy 24

1.2 Financial statements preparation inenterprises 24

1.2.1 Statement of financial position (balance sheet) preparation 24

Guidance for financial position preparation is stated in article 112 of Circular 200/2014/TT−BTC 24

1.2.1.1 Basis for preparation of the Balance Sheet 25

The information which is used in preparation of the balance sheet was based on: 25

− The general accounting books; 25

− Detailed accounting books, cards on detailed summary sheet; 25

1.2.1.2 Content and methods of setting up items in balance sheet of enterprises to meet the

assumption of continuous operation (Form B01-DN) 25

− “Opening Balance” column: Based on the closing balance column of the previous year balance sheet to fill in the items, the column does’s change during the period 25

− “Closing Balance” column: Based on the closing balance of the detailed accounts at year end declaration The items will be recorded as follow: 25

 Debit balance of account will be recorded in to corresponding assets section 25

 Credit balance of account will be recorded into corresponding equity section 25

− In case of items which are related to many other accounts, the ending balancec of relevant accounts will be collected to record 25

− Accounts such as 129, 139, 159, 214, 229, in which has ending balance, will be record in negative value with form (− value) in the corresponding items in assets section 25

− Accounts such as 412, 413, 421, if ever record in equity section, the debit balance will stillbe recorded in the equity section, but in negative value with form (−value) 25

− Debit balance and credit balance in “Trade receivables””, as well as debit balance and credit balance in “Trade payables” can not offset each other 26

1.2.2 Income statement preparation 26

1.2.2.1 Basis for preparation of the income statement 26

The preparation of cash flow statement is based on: 26

- Based on income statement of previous year 26

- Based on general accounting books and detailed accounting books in period used for accounts from 5 to 9 26

1.2.2.2 Contents and methods of preparation of item in income statement (Form B02-DN) 26

The determination of the number of common shares that shall be issued in period shall be complied with the provisions of Accounting Standards, "Earnings per Share" 33

1.2.3 Cash flow statement preparation 33

1.2.3.1 Basis for preparation of cash flow statement 33

The preparation of cash flow statement is based on: 33

- The Balance sheet; 33

- The income statement; 33

- The notes to the financial statements; 33

- The cash flow statement of previous period; 33

- The other accounting documents, such as: General accounting books, detailed accounting books of accounts "Cash", "Cash in bank", "Cash in transit"; General accounting books and detailed accounting books of the relevant accounts, spreadsheets and allocation of depreciation of fixed assets and other detailed accounting documents 33

1.2.3.2 Content and methods of preparation of items in cash flow statement (Form B03-DN) 34

1.3 Financial statements analysis in enterprises 52

1.3.1 Documents and methodolody for financial statements analysis 52

1.3.1.1 Documents for analysis 52

The company’s accounting information required for financial statements analysis includes: informations on financial reports, detailed accounts, statistical documents, strategic plans and business development strategies, namely: 52

- Balance sheet B01 - DN 52

- Income statement B02 - DN 52

- Cash flow statement B03 - DN 53

- Financial statement footnote B09 - DN 53

CHAPTER 2 64

PRACTICAL SITUATION OF FINANCIAL STATEMENTS PREPARATION AND ANALYSISAT DUYENHAI 64

TRANDING AND MANUFACTURER, LTD 64

2.1 Overview of Duyenhai Trading and Manufacturer, Ltd 64

2.1.1 Foundation and development of the company 64

2.1.2 Characteristics of business operation 65

2.1.2.1 Main business sector 65

CFS warehouse (container freight station): is a warehouse location licensed by Customs to certify the exploitation and delivery of import and export goods sent by containers CFS warehouse service provides customers with convenience and reduces the cost of sea freight but still ensures the safety of goods due to strict storage regulations for goods in the

warehouse Customers are supported on time to complete procedures and production troughs / shifts always meet workers and equipment, facilities to serve customers for quick pick-up and delivery The company pays special attention to improving the customs formalities,

performing the signed contracts 66

2.1.2.2 Advantages in company’s operation 67

Transportation and warehousing are closely related to economic growth and world trade The Government's macroeconomic policy instruments have initially been effective and brought new opportunities for Vietnamese businesses 67

The government is developing and investing in key sectors of the economy such as electricity, oil and gas, industry and transportation These policies bring dual advantages to theCompany when the transportation industry and other sectors that are the main customers of the Company will receive preferential treatment or development support of the State 67

The company has an extensive network of partners and customers both at home and abroad, which will be a good force for the Company to further develop its market share in the market and exploit target customers 67

Advantage of having modern technology and advanced equipment is the capable of carrying out large tonnage contracts 67

The company is headquartered in the industrial zone of Dinh Vu Hai Phong port - one of the arterial traffic points, is one of Vietnam's major border gates and seaports 67

2.1.2.3 Disadvantages in company’s operation 67

The extent of expansion and the involvement of many companies in the field of warehousing have made competition in the market become fiercer The competition is not only reflected in the market share but also in the fee rates between companies when most customers are now interested and consider price as the only criterion in selecting service providers 67

Changes in world petrol prices have a direct impact on the Company's production costs68As warehousing and transporting are main business sector, all types of machinery and equipment are types of assets that could cause harm to employees 68

2.1.2.4 Business results and financial position of the company in 2019 68

Table 2.1: Main indicators reflects financial position of the company in 2019 69

2.1.2.5 Production and business plan in 2020 69

Due to the outbreak of Corona virus, business plan of the company had been reduced into the two following plan: 69

Become an exclusive distributor of Fujiaire 69Other quotas will follow the previous year’s business plan 69If the market shows improvement after the outbreak, the plan could be change so that it would suit the practical situation 70

2.1.3 Characteristics of organising management mechanism of Duyenhai Trading and Manufacturer, Ltd 702.2.2.1 Business results’s analysis at Duyenhai Trading and Manufacturer, Ltd 83

CHAPTER 3 98

1 The urgency of the study

In the current situation, our country is in the process of economicdevelopment and integration according to the development of the world andthe trend of the times Economic integration and development is anopportunity and also a great challenge for the country's economy in generaland in particular domestic enterprises in particular This requires eachenterprise to make efforts, maximize its advantages, as well as overcome theweaknesses that still exist in order to integrate with the world economy In theera where science and technology are advancing and upgrading by hour, asingle decision can decide the fate of an entire business entity

To be able to make a right decision, the leaders must have informationabout company’s current status presented clearly and faithfully, so that noitems shall be mistaken Having a good accounting information system alsoallows director to manage the company’s operation so that if any problemarises, they can interfere and solve the problem in no time But the accountinginformation system is too complicated for users such as creditors, lendors, andemployees… to understand, so a need for a compact but fully and clearly –presented occurred, and financial statements was made Financial statementsare written records that convey the business activities and the financialperformance of a company

Financial statements are often audited by government agencies,accountants, firms, etc to ensure accuracy and for tax, financing, or investingpurposes Investors and financial analysts rely on financial data to analyze theperformance of a company and make predictions about its future direction of

the company's stock price Financial statements are the main source offinancial information for most decision makers.

On the base of practicing thesis and theories of preparing and analysingfinancial statements which had been studied at the academy andunderstanding practical situation at the company, under guidance and supportof supervisor, MSc Nguyen Ba Linh and the company’s employees, I hadachieved some success in researching company’s practical operation This isalso an opportunity given to us by the academy to strenghthen the knowledge,as well as develops suitable skills Based on that, I decided to choose the topic

of “The preparation and analysis of financial statements in DUYENHAI

Trading and Manufacturer, Ltd” to make my graduation thesis.2 The purpose of the study

Based on the theoretical basis that has been studied in combination withthe actual study in the enterprises, the topic of the thesis is selected andstudied to meet the following objectives:

− Obtain a brief view of process of preparing and analyzing financial

statements at Duyenhai Trading and Manufacturer, Ltd.

− Provide comments, evaluations to contribute to promoting the

development of the process of preparing and analyzing the financial

statements at the company.

3 The subject and scope of the study:

 Subject: The preparation and analysis of financial statements atDuyenhai Trading and Manufacturer, Ltd.

 Scope: The preparation and analysis of financial statements atDuyenhai Trading and Manufacturer, Ltd in 2019

4 Research Method

− Direct observation method of implementing acconting principles

in preparing financial statements.

− Methods of survey, data collection and recording, during the

internship process, using direct interview, observation and research methodsto collect and record necessary documents related to the topic selected;

− Methods of synthesis and analysis: based on books, financial

statements and collected data synthesized as a bbasis for research andpractical analysis of practice untis.

5 The structure of thesis

The thesis includes three chapters

CHAPTER I: Genaral theory of financial statements preparation andanalysis in enterprises.

CHAPTER II: Practical situation of financial statements preparationand analysis at Duyenhai Trading and Manufacturer, Ltd.

CHAPTER III: Some solutions to improve the preparation andanalysis of financial statements at Duyenhai Trading and Manufacturer,Ltd.

Finally, I gave my humble appreciation to Msc, Mr Nguyen Ba Linh andMrs.Bui Thi Thi, chief accountant of Duyenhai Trading and Manufacturer,Ltd for the guidance to help me accomplish this thesis.

Sincerely thanks!

1.1.1 The basics of financial statements

1.1.1.1 Financial accounting information

Accounting is the process of identifying, measuring, and communicatingeconomic information to permit informed judments and decisions by the usersof the information, as defined by The American Accounting Association This

information is primalily financial−stated in money terms Accounting, then, isa measuring and communicating tool used to reflect on the activities ofprofit−seeking business organizations and not−for−profit organizations Asmeasurement and communication process for business, accounting suppliesinformation that permits informed judments and decisions by users of thedata.

Accounting information is the information that arises from businesstransactions Once identified, the information is then classified and recorded,and it eventually finds its way into various reports.

The process of providing information

1) Identify stakeholders (users of accounting information): usually, theusers of accounting information are divided into two factions:

 Internal users: includes owners, managers, employees External users: includes customers, creditors, government

2) Assess stakeholders’s informational needs: each kind of user has adifferent motives and objectives, therefore holds different needs of accountinginformation.

 Owners: need to assess how well their business is performing.They are also interested in knowing how risky their business is and can be

 Managers: need accounting information to plan, monitor andmake business decisions.

 Employees: need accounting information to get a betterunderstanding of the company’s business, so that they may have proper plansfor future development.

 Investors: need accounting information to know how well theirinvestment is performing, therefore decide should they keep investing or stop.

 Lendors: need accounting information to assess their creditworthiness, their ability to pay back loan.

 Suppliers: need accounting information to assess the worthiness of its customers before offering goods and services on credit.

credit- Tax Authorities: need accounting information of suppliers andconsumers in order to identify potential tax evaders Occasionally, taxauthorities conduct audits of the tax returns filed by businesses in order toverify the information with the underlying accounting records.

3) Design the accounting information system to meet stakeholders’sneeds.

An accounting information system (AIS) is a structure that a businessuses to collect, store, manage, process, retrieve and report its financial dataso it can be used by accountants, consultants, business analysts, managers,chief financial officers (CFOs), auditors, regulators, and tax agencies.

4) Record economic data about business activities and events.5) Prepare accounting report for stakeholders.

1.1.1.2 Definition and objectives of financial reporting

 Financial statements, which include the income statement,balance sheet, and statement of cash flows

 Accompanying footnote disclosures, which include more detail oncertain topics, as prescribed by the relevant accountingframework

 Any financial information that the company chooses to post aboutitself on its website

 Annual reports issued to shareholders

 Any prospectus issued to potential investors concerning theissuance of securities by the organization

Financial statements are written records that convey the businessactivities and the financial performance of a company Financial statementsare often audited by government agencies, accountants, firms, etc to ensureaccuracy and for tax, financing, or investing purposes

b) Objectives

 Financial reportings provide information about the reportingentity that is useful to existing and potential investors, lendors andother creditors in making decisions about providing resources tothe entity.

 The information provided about financial performance helpsexisting and potential investors, lenders and other creditors tounderstand the return the entity has produced on its economicresources.

 Decisions by invetors are about buying, selling or holdingeuity and debt instruments depend on the returns that they expectfrom an investment in those instruments, eg dividends, principaland interest payments or market price increase.

 Decisions by ledors are about providing or selling loansand other forms of credit depend on the principal and interestpayments of other returns that they expect.

 The information must reflect the effect on performance ofchanges in market prices and/or interest rates.

1.1.1.3 Requirements of financial statements presentation

According to Article 101 of circular 200/2014/TT-BTC about“Requirements for information presented in financial statements”, thefollowing are requirements for information presented in financial statements:

1 Information presented in the financial statements must be recordedhonestly and reasonably the financial situation, trading situation and incomeof enterprises To ensure honesty, the information must be complete,objective, unmistaken.

- Information is only complete when including all the necessaryinformation to help users of financial statements to understand the nature,forms and risks of transactions and events For some items, the fullpresentation must also describe more information about the quality, thefactors and circumstances that may affect the quality and nature of the items.

- Objective presentation is unbiased selection or description onfinancial information Objective presentation must ensure neutrality which donot focus, emphasis or reduce as well as perform other acts to alter the impactof the financial information to become beneficial or unbeneficial for users offinancial statements.

- No errors mean no omissions in the description of the phenomenonand no errors in the process of providing reporting information selected andapplied No errors do not mean complete accuracy in all respects, forexample, estimating unobservable cost and value is difficult to determine tobe correct or incorrect The presentation of an estimate is considered to behonest, if the estimated value is described clearly, and the nature andlimitation of the estimating process is explained and there is no error in theselection of appropriate figures in the estimate.

2 Financial information must be appropriate to help users of financialstatements to predict, analyze and make economic decisions.

3 Financial information must be presented fully in all importantrespects Information is considered to be important in case information is notsufficient or inaccurate information may affect the decisions of users offinancial information of the reporting unit Materiality shall be based on thenature and magnitude, or both, of the relevant items presented in the financialstatements of a particular unit.

4 Information must be verifiable, timely and understandable.

5 Financial information must be presented consistently and must becomparable among the accounting periods and enterprises.

1.1.2 Types of financial statements

1.1.2.1 Balance sheet

* Definition of balance sheet

Balance sheet is a statement of the assets, liabilities, and capital of abusiness or other organization at a particular point in time, detailing thebalance of income and expenditure over the preceding period.

* Nature and purpose of balance sheet

 The purpose of the balance is to set out the financial position of abusiness at a particular point in time.

 It gives a snap shot of the assets, liabilities and equity position ofthe entity at a particular point in time.

 It sets out the assets of the entity on the one hand, and the claimsagainst it on the other.

* Format of balance sheet

There are two formats of presenting assets, liabilities and owners’equity in the balance sheet – account format and report format In accountformat, the balance sheet is divided into left and right sides like a T account.The assets are listed on the left hand side whereas both liabilities and owners’equity are listed on the right hand side of the balance sheet If all the elementsof the balance sheet are correctly listed, the total of asset side (i.e., left side)must be equal to the total of liabilities and owners’ equity side (i.e., rightside).

Picture 1: Example of account format

The report format (vertical format) is used more frequently In verticalformat, the balance sheet elements are presented vertically i.e., assets sectionis presented at the top and liabilities and owners equity sections are presentedbelow the assets section

As at 31 December 2019

Unit: VND

1 Short-term trade receivables131 137,502,696 33,004,453 2 Short-term loan receivables135 - 1,350,000,000 3 Other short-term receivables136 - 142,109,247

In vertical format, the balance sheet has 5 columns:  Columns 1: Items

 Columns 2: Code of items

Column 2 is used to sumưup in preparation of combinedfinancial statements r consolidated financial statements.

 Columns 3: Notes of items represented in the notes to thefinancial statements

 Columns 4: Ending balance

Figures recorded in column 4 are based on related accountclosing balance in general ledger.

 Columns 5: Beginning balance

Figures recorded in column 5 of the financial statement inthis year based on figures in column 4 of the same items in the financialstatement in the prior year.

* Items on balance sheet

 The accounting equation:

Assets = Liabilities + Owner's (Stockholders') Equity

 Assets: Things that are resources owned by a company andwhich have future economic value that can be measured and canbe expressed in currency Examples include cash, investments,accounts receivable, inventory, supplies, land, buildings,equipment, and vehicles.

 Liabilities: Obligations of a company or organization Amountsowed to lenders and suppliers Liabilities often have the word"payable" in the account title Liabilities also include amounts

received in advance for a future sale or for a future service to beperformed.

 Owner’s equity: Owner's equity represents the owner'sinvestment in the business minus the owner's draws orwithdrawals from the business plus the net income (or minus thenet loss) since the business began.

1.1.2.2 Cash flow statement

* Definition

A cash flow statement is a financial statement that provides aggregatedata regarding all cash inflows a company receives from its ongoingoperations and external investment sources.

* Nature and purpose of cash flow statement

 Cash flow statement shows inflow and outflow of cash and cashequivalents from various activities of a company during aspecific period under the main heads i.e., operating activities,investing activities and financing activities.

 Information through the Cash Flow statement is useful inassessing the ability of any enterprise to generate cash and cashequivalents and the needs of the enterprise to utilize those cashflows.

 Taking economic decisions requires an evaluation of the abilityof an enterprise to generate cash and cash equivalents, which isprovided by the cash flow statement

* Format of cash flow statement

There are two forms of cash flow statement: using direct methodand using indirect method.

CASH FLOW STATEMENT

(Under indirect method)

For the year ended 31st December 2019

Unit: VND

I Cash flows from operating activities

2 Adjustments for:

Depreciation and amortisation2750,189,924 632,523,448 Unrealized foreign exchange difference444,312 - (Gain) loss from investing activities5(170,496,639) (514,802)

accrued interest and business income tax payable) 11 1,279,261,622 789,426,808 (Increase) decrease in prepaid expenses12365,099,564 145,551,822

Corporate income tax paid14(18,078,246) (13,925,992)

Net cash from (used in) operating activities 20 1,465,779,534 2,336,299,683

II.Cash flows from investing activities

1 Acquisition of fixed assets and other long–term assets21(1,876,665,000) (322,782,000)2.Cash outflow for lending and buying debt

3.Cash recovered from lending and selling debt

instruments of other companies 24 1,350,000,000 -

Net cash from (used in) investing activities 30 (356,168,361) (1,272,267,198)

III Cash flows from financing activities

1.Repayments of borrowings34(1,076,000,000) (1,076,000,000)

Net cash from (used in) financing activities 40 (1,076,000,000) (1,076,000,000)

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year60978,675,637 990,643,152

Effect of changes in foreign exchange rates61(44,312) -

Cash and cash equivalents at end of year

Picture 3: Example of cash flow statement using indirect method

ARTICLECODEINTERPRETATIONCURRENT YEARPREVIOUS YEAR

1 Cash receipts from goods sale, services supply and others01 2 Cash payments to goods suppliers and service providers 02

4 Cash payments of loan interests04 5 Cash payment of enterprise income tax05 6 Other cash receipts from business activities06 7 Other cash payments to production and business activities07

1 Cash payments to procure and/or construct fixed assets and other

2 Cash receipts from the liquidation, assignment or sale of fixed assets

3 Cash payments to provide loans, to acquire debt instruments of other

4 Cash receipts from the recovery of loans provided, from the re-sale of

5 Cash payments of investments in capital contributions to other units25 6 Cash recovered from investments in capital contributions to other units26 7 Cash receipts from loan interests, dividends and earned profits27

1 Cash proceeds from the issuance of shares or reception of capital

2 Cash repayments of contributed capital to owners or for redemption of

3 Cash receipts from short- or long-term borrowings33 4 Cash repayments of principals of borrowings34 5 Cash repayments of financial leasing debts35 6 Cash payments of dividends or profits to owners or shareholders36

Cash and cash equivalents at the beginning of period60

Effects of changes in foreign exchange rates61

Cash and cash equivalents at the end of period (70 = 50+60+61)70

Picture 4: Example of cash flow statement using direct method

* Components of cash flow statement

The cash flow statement has 3 parts: operating, investing, and financingactivities There can also be a disclosure of non-cash activities.

+) Cash flow from financing activities

Definition: Financing activities are actions where money is flowingbetween the company and investors in the company, such as banks andshareholders

One of the three main components of the cash flow statement is cashflow from financing Financing concerns the borrowing, repaying, or raisingof money This could be from the issuance of shares, buying back shares,paying dividends, or borrowing cash Financing activities can be seen inchanges in non-current liabilities and in changes in equity in the change-in-equity statement.

+) Cash flow from operating activities

The operating cash flows component of the cash flow statement refersto all cash flows that have to do with the actual operations of the business Itrefers to the amount of cash a company generates from the revenues it bringsin, excluding costs associated with long-term investment on capital items orinvestment in securities (these are investing or financing activities).Essentially, it is the difference between the cash generated from customersand the cash paid to suppliers.

+) Cash flow from investing activities

Investing activity is an activity that causes changes in non-currentassets or involves a return on investment.

One of the components of the cash flow statement is the cash flow frominvesting An investing activity is anything that has to do with changes innon-current assets — including property and equipment, and investment ofcash into shares of stock, foreign currency, or government bonds — andreturn on investment — including dividends from investment in other entitiesand gains from sale of non-current assets These activities are represented inthe investing income part of the income statement.

1.1.2.3 Income statement

* Definition of income statement

The income statement also called a profit and loss statement is a reportmade by company management that shows the revenue, expenses, and netincome or loss for a period.

* Nature and purpose of income statement

 Income statement provides valuable insights into a company’soperation, the efficiency of its management, under−performingsectors and its performance relative to industry peers.

 Income statement gives an account of how the net revenuerealized by the company gets transformed into net earnings (profitor loss).

* Format of income statement

The income statement consists of five columns: Column 1: Items

 Column 2: Code of items

 Column 3: Note of items represented in the notes to the financialstatement

 Column 4: Current year’s amounts

 Column 5: Figures of the prior year (for comparative information)

INCOME STATEMENT

For the year ended 31 December 2019

Unit: VND

1 Gross revenue from goods sold and services rendered01 14,123,784,111 17,314,931,741 2 Net revenue from goods sold and services rendered

- In which: Interest expense23 149,584,914 207,101,834

7 General and administration expenses2615 2,873,321,946 3,387,305,556

8 Operating profit30 (485,161,144) 126,479,770 {30 = 20 + (21 ) - (26)}

10 Other expenses32 7,731,019 18,737,976

11 Profit from other activities 40 87,749,837 (16,935,279)12 Accounting profit before tax (50=30+40)50 (397,411,307) 109,544,491

13 Current corporate income tax expense5116 - 18,078,246

14 Net profit after corporate income tax

Picture 5: Example of income statement

* Components of income statements+) Revenue

Revenue is the money an entity receives from the sale of goods orservices Other terms frequently used for revenue are sales, net sales, or salerevenue It is also referred to as the “top line” because revenues are reportedat the top of the income statement.

+) Cost of Goods Sold

Cost of goods sold are the direct costs of producing the goods beingoffered by the entity This would include the materials, labor, and otherresources required for production.

+) Gross Profit

Gross profit is the difference between the revenue received for theproduct less the cost of goods sold.

+) Operating Expenses

Operating expenses are the amount an entity expends to maintain andoperate the general business Operating expenses include research anddevelopment, marketing, general and administrative, amortization ofintangible assets (i.e patents, good will, etc.), etc.

In addition, when an entity purchases a capital asset, such as a buildingor equipment, they expense a portion of the asset over a number of years; thisis called depreciation Depreciation expense is an accounting expense that isdeducted from net income.

+) Operating Income

Operating income is equal to revenues minus cost of goods sold andoperating expenses In other words, it measures the profits or losses of the dayto day operations of the business Another name for Operating Income isEarnings Before Interest and Taxes (EBIT).

+) Other Income/Expenses

To obtain net income, further adjustments must be made to account forinterest income and expense, income tax expenses, and other extraordinaryand miscellaneous items.

+) Profits

Revenues minus all expenses equals net income (profits or losses).Profits are also referred to as net income or the “bottom line” because profitsare reported at the bottom of the income statement Some analysts call these“accounting profits” because they include non-cash accounting entries such asdepreciation and amortization.

1.1.2.4 Financial statement footnotes

* Definition

Financial statement footnotes are explanatory and supplemental notesthat accompany a firm’s financial statements The exact nature of thesefootnotes varies, depending upon the accounting framework used to constructthe financial statements (such as GAAP or IFRS).

* Purpose of financial statement footnotes

 Refer to additional information provided in a company’sfinancial statements.

 Describe the items that are left out of the balance sheet andincome statement.

 Helps to clarify they would cloud the data reported in thefinancial statements.

 May also include information regarding future activities that areanticipated to have a notable impact on the business or itsactivities.

* Format of financial statements footnotes

Notes to the financial statements of a company are shown in threegroups:

 Structural.

 Adopted principles. Other related affairs.

1 How far the accounting standard has been adopted.

2 The followed principles of accounting and measuring methods.

3 The helping information of the accounting items presented infinancial statements.

4 Other matters such as contingent liabilities, detailed disclosure offinancial and non- financial matters.

Preparation of adopted principles of accounting

1 The basis of preparation of financial statements.

2 The accounting principles adopted in the preparation of financialstatements Besides, for their easy understanding the informationregarding who has used and analyzed the methods which havebeen adopted in measuring money with its historical cost, currentcost, realization cost or present cost should be stated in detail.Besides, methods adopted in case of;

 financial documents

 research and development cost inventory

 income tax reserve

 employee’s benefit expense foreign exchange

 business and geographical affairs

 cash and cash equivalent overvaluation

4 Some employees in a year or a particular period.

1.1.3 The basics of financial statement analysis

* Definition of financial statements analysis:

Financial statement analysis (or financial analysis) is the process ofreviewing and analyzing a company's financial statements to make bettereconomic decisions to earn income in future These statements include theincome statement, balance sheet, statement of cash flows, notes to accountsand a statement of changes in equity (if applicable) Financial statementanalysis is a method or process involving specific techniques for evaluatingrisks, performance, financial health, and future prospects of an organization.

* Purpose of financial statements analysis:

In an open economy, businesses that want to survive and develop mustalways backingưup their financial potentials and constantly improve their