The balance sheet and income statement under IFRS (2024)

What are IFRS?

IFRS, or International Financial Reporting Standards, are a set of international accounting standards that were introduced in 2005. These standards provide guidance on how to present financial information and provide a single, uniform accounting system at the international level.

The main objective of IFRS is to ensure that financial statements are presented in a consistent manner across different companies, countries and industries. And thus, to achieve a much more effective comparability and visibility of company accounts.

By requiring a common standard for financial statement presentation, investors and stakeholders can more easily compare the performance of different companies and make decisions.

Understanding the Income Statement

Simply put, it’s a financial report that shows how much your business has spent and earned over a period of time. It also shows how much profit or loss your business made over that same period.

If revenues exceed expenses, the figure is called a profit;
If expenses exceed revenues, it is called a loss.

Understanding the income statement under International Financial Reporting Standards (IFRS) is a crucial part of any financial analysis. The income statement is a report that summarizes the revenues, expenses and profits of an organization over a period of time. It is an essential tool for investors, creditors and managers to assess the performance and financial health of the company. IFRS is a set of international accounting standards that require companies to present their financial statements in a consistent manner. This makes it easier to compare the performance of different companies, regardless of their location or industry. By analyzing income statement information in accordance with IFRS, stakeholders can make better decisions about how best to allocate resources and improve profitability.

What is included in an income statement?

There are many types of income and expenses that a business must record in its income statement:

Revenues: These are sales of products or services made by the business, rental income or interest earned on bank accounts;
Gains: These are generally of a one-time nature, such as the sale of goods or equipment. Profit on the sale of fixed assets is considered a gain and will be included in the profit or loss statement;
Expenses: these are expenses that include all operating costs, such as the cost of goods sold, salaries, commissions, taxes, office expenses, rent, transportation costs, travel expenses, etc.;
Losses : Like earnings, these are one-time costs or events that represent a loss to the business, such as a settlement payment in a lawsuit.

What is a balance sheet?

Assets = Liabilities + Equity

A balance sheet is a financial statement that provides an overview of a company’s fixed assets, bank balances, deposits, other assets, liabilities, debts and capital at a given time. It is one of the essential components of international accounting and applies to companies that follow IFRS (International Financial Reporting Standards).

The purpose of the balance sheet is to show the financial position of an organization by providing a summary of its assets, liabilities and equity.

Assets are items owned by the company that have a monetary value, such as cash, investments, inventory and accounts receivable;
Liabilities are debts or obligations incurred by the business, such as loans from lenders, accounts payable, taxes owed, or wages owed to employees;
Equity is the net worth or ownership interest in a business, which includes capital contributions from owners as well as retained earnings accumulated over time.

By comparing these three categories on the balance sheet, investors can get a sense of a company’s overall financial performance.

Why do a balance sheet at the end of the year?

Having a balance sheet allows you to meet 3 major needs:

At the legal level: the realization of a balance sheet is a legal obligation. In the Emirates, the tax authorities may ask you to send them a balance sheet for each fiscal year;
To answer third party requests: In case of a bank loan request, banks will ask for the balance sheets of the last years;
Informing the shareholders: The balance sheet allows to inform the shareholders about the financial health of the structure at regular intervals.

How can Ares Accounting assist you?

Our firm can take care of the realization of all the financial statements of your company. One of our services “Closing of accounts” is mainly concerned with the realization of the Balance sheet, Profit and loss accounts, Balance sheet, General ledger.

December 8, 20220 Comments