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Vat reporting & impacts on financial statements.

The implementation of Value Added Tax (VAT) in Saudi Arabia has introduced significant changes to the financial landscape for businesses. VAT not only affects cash flows and compliance requirements but also has implications for financial reporting. 

We will explore the impact of VAT on financial reporting in Saudi Arabia, focusing on how it affects the preparation of financial statements and the key considerations businesses need to keep in mind.

VAT and Balance Sheet:

  • VAT Receivable and Payable: VAT collected from customers (output VAT) and VAT paid to suppliers (input VAT) are recorded as VAT receivable and VAT payable respectively on the balance sheet. These accounts represent the VAT amounts due to be remitted to the tax authority or recoverable from the tax authority.
  • Reconciliation of VAT Accounts: Businesses must reconcile VAT receivable and payable accounts with their VAT returns to ensure accuracy and compliance. Reconciliations help identify any discrepancies or errors that need to be rectified.

VAT and Income Statement:

  • VAT on Sales: VAT collected from customers is not considered revenue for businesses but rather a liability to be remitted to the tax authority. Therefore, businesses must present revenue net of VAT on the income statement.
  • VAT on Purchases: VAT paid to suppliers on purchases (input VAT) is generally not considered an expense but rather a recoverable amount. Therefore, businesses should exclude VAT from the cost of goods sold or expenses when calculating the gross profit or operating profit.

VAT and Cash Flow Statement:

  • VAT Payments and Refunds: VAT payments made to the tax authority should be classified as operating cash outflows, while VAT refunds received should be classified as operating cash inflows on the cash flow statement.

Disclosure and Presentation:

  • VAT Policies and Accounting Policies: Businesses should disclose their VAT policies, including the method of accounting for VAT, any material judgments made, and the impact of VAT on financial statements.
  • Presentation of VAT-related Figures: It is important to clearly present VAT-related figures on the financial statements, such as VAT receivable and payable balances, to provide transparency and ensure stakeholders can understand the financial impact of VAT on the business.

Auditing and Internal Controls:

  • Auditing Considerations: Auditors need to review the accuracy and completeness of VAT-related accounts and disclosures. They will also assess the effectiveness of internal controls related to VAT processes to ensure compliance and accurate financial reporting.
  • Internal Controls for VAT: Businesses should establish robust internal controls to manage VAT processes effectively, including proper recording of VAT transactions, reconciliation of VAT accounts, and compliance with VAT regulations.

Potential Impact on Financial Ratios:

  • The introduction of VAT may affect financial ratios, such as gross profit margin, net profit margin, and current ratio, as VAT amounts are excluded from revenue and expenses. Businesses should be aware of these potential impacts and consider providing additional disclosures or adjusting financial ratios for better comparability.

The implementation of VAT in Saudi Arabia has significant implications for financial reporting. Businesses need to understand the impact of VAT on financial statements, including the balance sheet, income statement, and cash flow statement. It is crucial to establish proper internal controls, reconcile VAT accounts, and clearly disclose VAT policies and figures.

Collaboration with auditors and professional advisors is essential to ensure compliance, accuracy, and transparency in financial reporting. By considering the impacts of VAT on financial statements, businesses can effectively navigate the challenges and opportunities arising from the VAT regime in Saudi Arabi

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Value-Added Tax (VAT)

A consumption tax applied to goods at every stage of the manufacturing process

Josh Pupkin

Josh has extensive experience private equity, business development, and investment banking. Josh started his career working as an investment banking  analyst for Barclays  before transitioning to a private equity role Neuberger Berman. Currently, Josh is an Associate in the Strategic Finance Group of Accordion Partners, a  management consulting  firm which advises on, executes, and implements value creation initiatives and 100 day plans for Private Equity-backed companies and their financial sponsors.

Josh graduated Magna Cum Laude from the University of Maryland, College Park with a Bachelor of Science in Finance and is currently an  MBA  candidate at Duke University Fuqua School of Business with a concentration in Corporate Strategy.

Sid Arora

Currently an investment analyst focused on the  TMT  sector at 1818 Partners (a New York Based Hedge Fund), Sid previously worked in private equity at BV Investment Partners and BBH Capital Partners and prior to that in investment banking at UBS.

Sid holds a  BS  from The Tepper School of Business at Carnegie Mellon.

  • What Is Value Added Tax (VAT)?
  • Value Added Tax Around The World
  • How A Value Added Tax Works
  • Value Added Tax History
  • Value Added Tax Vs. Sales Tax

Advantages Of Value Added Tax (VAT)

Disadvantages of value added tax (vat), calculating vat example, value-added tax (vat) faqs, what is value added tax (vat).

A consumption tax known as value-added tax (VAT) is imposed on goods and services at every step in the  supply chain  where value is added, from the first production step to the end sale.

The cost of the product minus the cost of already taxed components determines how much the consumer pays in VAT.

From the start of production through the end sale, a small portion of the overall tax is added at each stage.

Many have argued that it creates an excessive financial burden on lower-class citizens. In contrast, others say it is reasonable for the government to generate revenue without punishing the wealthy with ever-rising income taxes.

Value-added Tax, sometimes referred to as  Goods and Services Tax (GST)  outside of the US, is a consumption tax applied to goods at every stage of the manufacturing process.

The tax is assessed at each point where value is added during production. But ultimately, the tax burden falls on the final buyer. For instance, if a product costs $20 and the tax is 25%, the final price the consumer will pay is $25.

The value-added tax is also imposed on goods at every stage of sale and distribution, from manufacturer to wholesaler to retailer to consumer.

The purpose of a value-added tax is to repay the government for the businesses' use of infrastructure and other public goods or services during the production process. This tax is briefly discussed later in the article.  

Although there generally isn't much of a distinction between goods and services tax (GST) and value-added tax, they can refer to different tax schemes depending on the country.

An example is India because of the way it was implemented. GST incorporated indirect taxes, including a VAT, to prevent the cascading tax effect. The cascading tax effect refers to price inflation resulting from excessive taxation.

Key Takeaways

  • VAT, a consumption tax, is levied at each stage of production, ultimately borne by the final consumer, aiming to repay the government for infrastructure use.
  • Widely used by 165+ nations, VAT differs from income taxes and sales taxes, though it can impact lower-income individuals more than wealthier ones.
  • Unlike a sales tax applied only at the final transaction, VAT is levied at multiple stages, distributing the tax burden across the supply chain.
  • VAT simplifies tax collection but can raise costs for businesses, potentially impacting consumers' purchasing power, especially for low-income individuals.
  • VAT prevents double taxation and impacts the final price paid by consumers, necessitating careful accounting across each stage of production and sale.

Value-Added Tax Around the World

Unlike other taxes on income or wealth, this tax is levied on consumption. It is a flat rate tax applied uniformly on all purchases, as opposed to a progressive income tax that increases tax rates for the wealthy or a regressive tax that increases tax rates on poorer people.

This tax system is used by more than 165 nations, making it quite common worldwide. The United States does not use a value-added tax at the national level. 

Who has it right - the US or everyone else? One benefit is that it increases government revenue without levying a higher percentage tax on wealthy consumers. 

Depending on its application, it can be less complicated and inconsistent than a conventional sales tax, which leaves less room for compliance problems. Critics contend that it acts as a regressive tax on low-income consumers, who pay a larger share of their income towards this tax.  

It also raises companies' administrative costs, making goods more expensive. Some see it as an alternative to income tax, though most countries have both value-added and income taxes. 

The price at the next sale determines how much tax is applied. Its fundamental objective is only to tax the value a business adds to the services, products, and inputs it can buy from the market.

The product becomes progressively more valuable at each level of manufacture (e.g., chocolate bars starting as cocoa beans). 

Since the value added to a product is reflected in its cost, when a customer buys a product (such as a box of chocolates), they are also paying for the complete manufacturing process (such as the acquisition of the cocoa beans, transportation, processing, packaging, etc.).

The difference between the tax revenue from sales proceeds and tax revenue from the manufacturing inputs is used to calculate the portion of the tax that the government collects. 

The tax owed due to a business' value addition makes up the difference. In this method, the total tax collected at each point in the supply chain is a fixed percentage.

How a Value-Added Tax Works

Each stage in an item's production, distribution, and sale is assessed on the gross margin . Therefore, each step involves evaluating and collecting the tax. 

Imagine you're in the UK, with a standard value-added tax rate of 20%. Suppose you're looking to buy a car. How would this tax impact the consumer and the manufacturer?

  • The car manufacturer pays £10,000 for the raw materials and parts and £2,000 in taxes. The total purchase cost is £12,000.
  • A dealership buys the car for £30,000 and £6,000 in taxes, for a total cost of £36,000.  The manufacturer only pays the UK £4,000, the current total tax (£6,000) minus the previous tax levied (£2,000).
  • The dealership sells the car to a customer for £40,000 plus £8,000 in taxes. The total price faced by the consumer is £48,000. 

The dealership pays £2,000 to the British government, which is the total tax of his time (£8,000) minus the £6,000 in taxation that the manufacturer, raw materials, and parts supplier charged.

Value-Added Tax History

It was primarily developed in Europe. Germany and France were the first to implement such a tax as consumption tax during WWI. France implemented this tax as we know it today in 1954 as an economic experiment on Ivory Coast.

Even though the concept of taxing each stage of the production process is reported to have been first proposed a century earlier in Germany,  Maurice Lauré , the head of France's tax administration, launched it in 1954.

According to  research by the International Monetary Fund (IMF) , all countries that adopt it experience lower tax receipts at first. 

However, the analysis concluded that adopting the tax increased government revenue in most instances.

It is frequently divided into two rates: a standard rate and a reduced rate; the latter typically apply to items and services regarded as necessities. Some countries have a zero rate or fully recoverable rate,

For example, in the UK, the standard rate is 20%. However, a reduced rate of 5% is used for certain goods and services associated with home renovations and hygiene products. In addition, the tax is fully recoverable for some goods, including food, books, and transport.

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Value-Added Tax vs. Sales Tax

This tax is paid by each link in the supply chain, as opposed to a sales tax, which the buyer and assessed solely pay at the final sale step.

Sales taxes and VATs have a similar potential for revenue generation and are both indirect taxes. The main difference is when the tax is paid and by whom.

Recall the example of a car purchase in the UK at a 20% value-added tax rate:

  • The manufacturer spends £12,000 on raw materials and parts purchases, £2,000 of which is tax paid to the government by the supplier. 
  • The finished car is sold to a dealership for £36,000. £6,000 is taxed, £4,000 is paid to the government, and the supplier has paid the remaining £2,000.
  • The dealership sells the car for £40,000 and £8,000 in tax. The dealership gives the government £2,000, with the remaining £6,000 being paid by the manufacturer and supplier.  

The government earns 20 percent on every dollar spent, just like it would with a standard 20 percent sales tax. So, the total tax on the £40,000 car purchase comes to £8,000 regardless.

The difference is that it is paid at several points along the supply chain: the materials and parts supplier pays £2000, the manufacturer pays £4000, and the dealership pays £2000. 

However, it has benefits over a national sales tax. First, it is much simpler to follow. That might sound counterintuitive, but calculating the tax amount at every stage simplifies the tax process.

It is challenging to assign costs to particular manufacturing phases when a sales tax is used, as the complete sum is rendered after the transaction. 

Instead of having manufacturers, wholesalers, and retailers estimate the impact of taxes from manufacturing or sale rounds on final prices, the value-added system allows them to calculate it directly. 

Additionally, assurance is given that the same goods won't be double-taxed because the tax only charges each value addition, not the product sale itself.

The main distinction between sales tax and VAT is that sales tax is only calculated once at the point of the final transaction. 

Therefore, sales tax is paid only once by the ultimate customer, in contrast to value-added tax, which is calculated at each stage of purchase or manufacture and is paid by each subsequent buyer.

The ability to divide the tax amount between the various production phases based on the value added at each stage represents a fundamental advantage over sales tax. However, this also requires more effort from firms comprising the rest of the supply chain.

Although sales tax and VAT both bring in the same amount of money at the end of the supply chain, the latter is much more popular for a few reasons:

  • In the case of sales tax, the whole tax burden falls on the final consumer. In contrast, in the value-added approach, every party in the supply chain—the manufacturer, wholesaler, retailer, and customer—pays a tiny bit of tax that adds up to a sizable amount.
  • It is more uniform, less complicated, and easier to calculate. In addition, it makes creating tax categories for goods easy by using full, reduced, and zero tax rate classes.
  • Because the sales tax is only applied to the final product, it is challenging to determine the costs at each stage. This makes the value-added approach more valuable for accounting, forecasting, and other business operations.

In addition to budgetary justifications, it offers various advantages and disadvantages.

Let's take a look at the advantages:

1. It could make it harder to evade taxes, simplify the complicated state tax structures, and make tax collection at the state level faster. 

2. It would bring in tax revenues from all goods and services, including those sold online. AIn addition, tax revenues may increase due to less tax evasion and a simpler tax code. For federal taxes, the type of close record-keeping required with this tax system can help firms prepare their corporate income tax filings. Over time, value-added tax schemes bring in higher tax revenues than sales tax.

3. The idea is that instead of taxing people on their income, the government will tax them on their expenditures. Critics of progressive taxes often claim they disincentivize workers from earning higher incomes. Therefore, instead of taxing consumers when they earn more, it rewards people for earning higher incomes and allows them to control their budgets better.

4. Flat taxes may offer compelling incentives to work, which may increase an economy's overall gross domestic product (GDP). While there are distortions, consumption taxes are frequently seen as better than other taxes. 

5. This is because they distort investment, saving, and labor incentives less than most other forms of taxation; in other words, it discourages consumption rather than production.

On the other hand, the disadvantages are:

1. It could have negative effects felt by business owners and consumers by raising costs across the entire supply chain. 

Because it is computed at every stage of the manufacturing and sales process, just tracking this tax raises administrative costs for businesses, who then pass the additional burden on to customers. 

Furthermore, requiring businesses to put time and money towards an additional tax makes starting and operating a business more expensive. Although, in theory, it is preferable to sales tax because consumers don't have to pay the full tax amount, consumers frequently pay more for goods when applied.

2.  The higher expenses are often passed on to the customer, even though it is intended to supposedly distribute the tax burden on a good's added value as it passes through the supply chain from raw materials to the finished product.

3.  The poor pay a higher tax rate than the rich, proportionate to their incomes. As a result, it lessens consumers' purchasing power and can make it challenging for low-income people and households to buy necessities.

When transactions are both local and global, business gets more complicated. For example, several nations may interpret the tax calculation method differently. This adds to the administrative burden and may cause unnecessarily long transaction delays.

4.  Worldwide businesses and multinational organizations with global supply chains spanning many tax systems may find this particularly difficult. 

Since many of these businesses produce many consumer goods, this can lead to globally higher prices for businesses and consumers.

This system is more expensive to implement, even though it may be easier to maintain. In addition, tax evasion may become pervasive if the public fully accepts it. 

5.  Conflicts between a federal VAT and the nation's state and local governments, who presently set their own sales taxes, could also arise.

Tax evasion can still occur. For example, some small firms can adjust the amount of the ultimate taxation by forgoing providing receipts or just not recording certain transactions if they're using a cash basis.

6.  The introduction of the tax may initially result in lower government revenue. However, governments looking to introduce this tax should do so when the economy is doing well and won't have to spend to stimulate it.

Like other taxes, it distorts transactions. This is because the number of items bought decreases as prices increase. In other words, the losses from changes in supply and demand outweigh the profits from taxes. 

7.  Taxes result in  deadweight loss:  The general fall in demand and the accompanying decline in production levels that occur after the introduction of a tax can be seen as the deadweight loss of taxation.

Take the tax amount at the current production step and subtract the tax that has already been paid to determine the amount of value-added tax that must be paid at each stage. 

This system prevents double taxation and guarantees that buyers at each stage are compensated for any prior tax they may have paid.

Example: Bike Manufacturer

Consider the following scenario: a 20% VAT is applied at each level. A bike parts manufacturer spends $12, including a 20% tax ($2), on raw materials. 

The assembler purchases the pieces for $24 after they have been produced, which includes a $4 tax. The producer receives $24, giving the government $2.

The manufacturer will keep the amount of the $2 tax that he already paid to the supplier of the raw materials; thus, the government still needs to receive the whole $4 tax levied so far from just the parts manufacturer. 

The tax at the most recent step of purchase or production can be subtracted from the tax at earlier stages to determine the tax paid at each one.

Since suppliers in the earlier stages of the purchase process are repaid for the tax they have paid, as was already mentioned, the total tax is ultimately transmitted to the final buyer(s). 

The tax paid through other purchases at earlier stages is entirely covered by the ultimate retail customer, as shown below. The price (value-added tax excluded) can also be used to get the end consumer's tax; for example, $70 * 20% = $14.

A flat charge called a "value-added tax" is a widely used consumption tax. 

It resembles a sales tax in some ways, except that with a sales tax, the consumer pays the entire amount due to the government on the final purchase. 

Under this tax regime, various participants in a transaction each pay a piece of the tax amount during the manufacture and sale process.

If this tax were to take the place of the income tax , then wealthy consumers would benefit. But,  similar to other flat taxes, the poor, who spend most of their money on needs, would be more affected by it than the wealthy.

With this system, lower-income consumers may pay a significantly larger percentage of their income in taxes, depending on the standard rate. 

Yes, to some end. A government may choose to exempt some essential food, medical, and household goods from the tax or impose a significantly reduced tax rate. For example, The UK has a zero rate on foodstuffs.

To counteract the consequences of the tax, it can also offer low-income citizens rebates or  earned income tax credits  if the country has VAT and income tax .

Value-added tax differs from income tax in the following ways:

  • It is typically collected on all levels, while income taxes are filed by individuals and paid to the government.
  • This consumption tax is a flat tax. Income tax is often a progressive tax and has many more brackets. For example, aside from the income brackets, there are different brackets based on whether the filers are filing alone or with a spouse.

On the other hand, VAT is often offered at full, reduced, and zero rates,

  • A product imported from outside the country imposing the tax is considered a 100% importer contribution for VAT. 

Even if the foreign producer paid other types of income tax, the importer is responsible for paying tax on the total value of the product and cannot recoup it.

No, there is no national value-added tax in the United States. The income tax system is the federal government's main revenue source. 

The state governments set and collect sales taxes and decide what consumption tax to impose.

From  1975 to 200 7, the state of Michigan did have a single business tax that used the value-added basis. 

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  • Financial Statements: Balance, Income, Cash Flow, and Equity

Do Tax Liabilities Appear in the Financial Statements?

vat presentation in financial statements

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

vat presentation in financial statements

Taxes appear in some form in all three of the major financial statements: the balance sheet, the income statement, and the cash flow statement. Deferred income tax liabilities can be included in the long-term liabilities section of the balance sheet . Deferred tax liability is a liability that is due in the future. Specifically, the company has already earned the income, but it will not pay taxes on that income until the end of the tax year. Long-term liabilities are payable in more than 12 months.

Sales tax and use tax are usually listed on the balance sheet as current liabilities. They are both paid directly to the government and depend on the amount of product or services sold because the tax is a percentage of total sales. The sales tax and use tax depend on the jurisdiction and the type of product sold. These taxes are generally accrued on a monthly basis. Any expense that is payable in less than 12 months is a current liability.

Income and Cash Flow Statements

The income statement , or profit and loss statement, also lists expenses related to taxes. The statement will determine pre-tax income and subtract any tax payments to determine the net income after taxes. Using this method also allows companies to estimate their income tax liabilities.

The cash flow statement also includes information on tax expenses. It is listed as "taxes payable" and includes both long-term and short-term tax liabilities. When taxes are paid during the cash flow period reflected in the statement, then this change is shown as a decrease in taxes payable.

vat presentation in financial statements

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Explaining Financial Statements

Explaining Financial Statements

Apr 10, 2018 · Here's a detailed look at consolidated financial statements, how to understand them, and the role they play in financial projections.

vat presentation in financial statements

Taylor Davidson

CEO / Founder

Following up on the introduction to finance and accounting , here's a deeper dive into the three statements of the consolidated financial statements.

Income Statement #

The income statement is usually the report that draws the most attention, and since each component of the statement shines light into different parts of the business's performance, it's worth explaining the details of the statement to understand what the different terms mean. Here's an overview of the basic structure of the income statement.

Revenues measure the money that is brought into a company from its business activities, often called sales. Revenues can be reported divided up into different business activities, or by different departments or regions, in the effort to provide more information and transparency into how a business operates.

The calculation of revenues often distinguishes between Gross Revenues and Net Revenues, net revenues reflected the revenues after accounting for discounts, returns, chargebacks, affiliates, or other contra-revenues.

Revenue can be recognized in different periods than the cash or payment for the revenues are received (under accural accounting), so it's important to distinguish in our forecasts when revenue is recognized and when cash or payments are received. If cash is received in advance of the revenues being recognized (for example, 12 months upfront payment for a SaaS service), then the balance goes to a balance sheet account for deferred revenue liabilities, and you decrease the revenue liability over time as you recognize the revenues. If cash is received after revenues are recognized, it's usually recorded as an accounts receivable.

For modeling purposes, if the cash is generally received within the same time period as the recognition of revenues (say 30 days for monthly forecasting), you can generally assume that revenues equals cash receipts.

The Foresight models - Standard and above - are prebuilt to handle a wide variety of revenue recognition and cash receipts scenarios, and will automatically handle the revenue recognition, cash, and balance sheet impacts of many different scenarios.

Cost of Goods Sold (COGS) #

Cost of goods sold (or cost of sales, or cost of revenues, or COGS) reflect the direct costs to produce the goods sold that earned the revenues during that period.

The rules for what costs are included into COGS can vary by business and how revenues are earned, but always true back to that basic principle. Production does not involve distribution or sales, but can include support, if the support is a function that is involved in providing the product, rather than selling the product.

For most costs it's fairly straightforward to figure out which costs are allocated to COGS and which ones to SG&A, but it can get a little complicated. GAAP and IFRS provides rules and guidance on how to handle certain costs, and for specific questions, best to consultant an accountant with experience with your types of businesses (or simply send me an email ).

The Foresight Standard and Starter Models handle the allocation of costs to COGS and SG&A in a very flexible way. You can specify a COGS margin or amount - relating to revenues - and additionally type in a number of costs into the Expenses section, and allocate them to COGS simply by selecting COGS in the dropdown, and the correct accounting treatment is handled automatically. This way, you have two methods to forecast COGS that provide flexibility to change it over time, and the edits required to shift a cost between COGS and SG&A is trivial.

Gross Margin #

Gross Margin reflects the amount of revenue that the company retains after incurring the direct costs associated with providing the products and services that earned the revenues.

Or, more simply:

Gross Margin = Revenue - Cost of Goods Sold

And for gross margin %:

Gross Margin % = ( Revenue - Cost of Goods Sold ) / Revenue

Gross margin is an important concept since it is one measure of operations and profitability, and helps a company think about the costs related to produce the products and services it sells. It also helps a company think about how much money is left over to pay for the costs to operate the business.

Selling, General and Administrative (SG&A) #

Selling, general and administrative (SG&A) costs are the costs associated with operating the business, and not in producing the products or services. SG&A costs encompass many different types of costs and can be broken down into direct and indirect selling costs, fixed and variable overhead, operating expenses. Essentially, it's all the costs related to the business that are not COGS.

The Foresight models handle the allocation of costs to SG&A in a very flexible way, and allow you to assign the costs to a set of dynamic categories to help in reporting the components of SG&A. Just input the costs in each row, select SG&A in the dropdown, select the reporting category in the dropdown, and the model handles the accounting treatment automatically. The reporting is not a formal part of the income statement but provides valuable additional insight into the major cost areas.
The models use one repoting category to represent selling costs (e.g. acquisition costs, marketing costs), which is then used for calculating customer acquisition cost (CAC). It's not a formal part of the income statement but an important additional metric for business analysis that the models handle automatically.

EBITDA - Earnings before interest, taxes, depreciation, and amortization #

Fairly self-explanatory, EBITDA is a popular metric that can be used to understand the core operating earnings of a company, and it's often used for valuation ratios and evaluating the company without the impact of accounting choices.

By definition, EBITDA is:

EBITDA = Net income + interest + taxes + depreciation + amortization

I usually report EBITDA on a forecasted income statement, although it's not necessary in formal corporate accounting, as it would usually be something that is calculated as an additional information point outside of the income statement. I do it that way because it's a fairly popular metric to help understand a company's profitability and it's easy to see the flow of the revenues and expenses that way.

For the Foresight models, that means that EBITDA is calculated as:

EBITDA = Gross Margin - SG&A

By definition, that means that the SG&A does not include the "ITDA", which are reported separately below EBITDA on the income statement. The Foresight models let you input interest, depreciation, and amortization as expenses, but select the appropriate category (interest and depreciation/amortization) so that the model separates the expenses into the appropriate accounting treatment.

Depreciation and Amortization #

Depreciation is a difficult thing for most beginners to financial modeling to understand, but it need not be too hard: it is an accounting method for a company to spread the cost of purchasing an asset over it's useful life. It attempts to help correct for large one-time expenses by effectively allowing you to account for the expense over the time period where the asset will contribute to the business's operations (the useful life). It also holds with the general accounting goal of matching expenses to the time periods in which they contribute to earning revenues.

Depreciation does not impact cash, which is often the trip up for beginning financial modelers. It is one of the ways in which the income statement deviates from the statement of cash flows, and which causes net income during a period to not equal net change in cash flows during the same period.

Depreciation is recorded on the income statement, and also recorded on the balance sheet as it decreases the value of the asset on the balance sheet. When you "capitalize" an expense (recording it as a capital expenditure instead of an ordinary operating expense), you record the value of the expense on the balance sheet, and then in future periods depreciate the asset on the income statement, reduce the value of the asset on the balance sheet (typically through an accumulated depreciation account), and add it back to net income on the statement of cash flows under the cash flow from operations section.

Amortization refers broadly to the spreading of expenses over a period of time, such as a mortgage, loan, or purchase of asset, but for the context of the income statement refers strictly to the spreading of costs of purchasing intangible assets over their useful life. The rationale and concept is similar to depreciation, but applies to the purchase of intangible assets such as patents or the goodwill created by purchasing another company for a premium over it's valuation

For many companies, depreciation and amortization could be minor issues in financial models. If a company is not making significant investments in hard assets, or it not capitalizing software development costs, then depreciation may irrelevant or minor and is often ignored in very basic financial reports and analysis. Amortization will be nonexistent unless the company has purchased intangible assets.

The Foresight models handle the depreciation for all capital expenditures - all expenses categorized as CAPEX in the expenses section - using a straight-line method, and using a time period that can be input in the Get Started or Settings sheets. Straight-line is the easiest method of depreciation, and effectively spreads the cost of purchasing the asset equally over a time period, which is intended to be the asset's useful life, or time period where the asset can be used productively in the business. Depreciation and it's impact on the assets accounts are automatically handled by the model on the income statement, balance sheet, and statement of cash flows.
There are many different methods for depreciation than straight-line, and you may find yourself wanting to create depreciation schedules that depreciate different assets over different periods of time and using different depreciation methods. This is not prebuilt into the models, but can be added by expanding the depreciation schedule on the Costs sheet.
The Foresight Models generally ignore amortization, as it is nonexistent for most early-stage companies. I typically do not include lines for amortization or intangible assets. If you need to add in amortization, it can easily be added into the model by adding in an amortization schedule and adding the relevant accounts to the balance sheet and statement of cash flows. I've honestly never had a request to add in amortization by a Foresight model user.

Interest expenses (and income) are generally recorded separately from revenues, COGS and SG&A (i.e. above EBITDA) as they generally are not associated with a company's core operations, and represent the costs (and earnings) from financing the company.

For some companies, earning income from interest may be a core part of their revenues, and should be treated appropriately as revenue.

The Foresight models (Starter, Standard, and above) have automatic schedules that calculate funding from debt instruments - loans - and their payback schedules, including interest expenses, using a set of user inputs around loan terms and interest rates. If you input new debt into one of the months under the cashflow forecast, the models will automatically handle all accounting impacts, and you can enter new debt into any month with different terms and interest rates, each month's debt is handled separately.
The models typically ignore interest income, but it can be input directly into the income statements as an input. I may build in simple interest income for cash on hand at a later point, but with low interest rates it is typically a minor point of any financial model.

Other Income and Other Expenses #

Other income and expenses are earnings or expenses that are not related to a company's core business operations, and thus are recorded separately from revenues and expenses.

For most early-stage companies or users of the Foresight models, this will generally be insignificant and can be ignored and left as zeros, but the model structure allows you to input these into the income statement if they occur.

EBT - Earnings before Taxes #

EBT represents earnings before taxes, and is simply:

EBT = Net Income + Taxes

EBT may not be recorded on all income statements, but I break it out on the Foresight models so that corporate taxes may be calculated accurately. Thus, similar to EBITDA, I build down to EBT, thus EBT is calculated as:

EBT = EBITDA - depreciation - amortization - interest expenses + interest income - other income + other expenses

Taxes reflect corporate taxes paid on the earnings from the business (EBT). Business taxes, excise taxes, and other non-income related taxes are operating expenses and not reflected here.

In the Foresight models , the corporate tax rate is an input (for the % of EBT that is paid as tax). The calculations of tax look to model the tax situations for most companies. No tax is paid when there is a net loss (negative EBT, or more simply, expenses greater than revenues), and I track net losses over time to track the loss carryforward to apply the net losses against the net gains so that the company does not pay taxes until cumulative net profits are greater than cumulative net losses. This assumes that the losses can be carried forward in entirety over the three or five year time periods used in the models. All of this is done automatically, and the only user input required is the corporate tax rate, on the Get Started or Settings sheet. Consult a tax professional for any questions around specific tax treatment and rules around loss carryforwards applicable to your situation.

A note about value-added taxes:

I'm often asked about VAT (Value-Added Tax), for users outside of the USA. Technically, a business is collecting VAT and then disbursing it to governments, so it is not income, and the VAT you pay on expenses is recompensed by the government, so it is not an expense. Sales and expenses should be recorded net of VAT, and thus VAT does not show up on a company's income statement as revenues or expenses. VAT would be recorded on the balance sheet under VAT control accounts to track how much VAT has been collected and paid, and while this could have a balance sheet impact - and particularly an impact on cash balances - if there is a significant period between when VAT is collected and when it is paid, for the purposes of financial modeling the typical assumption is to assume that time period is within a month (or is consistent over time), and thus I generally ignore accounting for VAT in the Foresight models.

Net Income #

Typically the last item on an income statement is net income, the company's total earnings or profit.

In the Foresight models, net income is:

Net income = EBT - taxes

I typically report the net income %, which is a measure of the ability of the company to turn revenues into profit:

Net income % = Net Income / Revenues

While net income often the thing that people look at first, I hope the explanation of the income statement helps explain that in understanding a business's performance, it's just one measure of operational success.

When analayzing an income statement, often I'll look at gross margin %, EBITDA %, and net income % together to get a look at how successfully the business turns revenues into profits, to draw insights about the business model of a company, and compare it to other companies in its industry, to get a feel for whether the company is performing well or not. Different types of companies will have drastically different profitability profiles given the fundamental operations of the business and the realities of their industries.

Statement of Cash Flows #

The Statement of Cash Flows breaks down the cash flows of a business during a period into three main areas, separating out the changes in cash created from the operations of the business, investing in the business, and financing the business.

Typically, the statement of cash flows records the cash on hand at the beginning of the period, the increase or decrease in cash flow resulting from operations, investing, and financing, and the cash on hand at the end of the period.

In the Foresight models, I build a typical statement of cash flows and also generally include a fourth statement that provides an alternative look at the cashflows of a company, and is a core part of the automatic fundraising calculations. For more on that function, read about the funding round forecasting ›

Cash Flows from Operations #

The cash flow from operations details how the operations of the business creates an increase or decrease in the amount of cash held by the company. The methodology is to start with net income, and then adjust it by adding back non-cash expenses (depreciation, amortization), and then adding (or subtracting) the changes in cash flows from working capital.

Changes in working capital is the net change in many balance sheet accounts that reflect the differences in timing between then cash is received or disbursed and when the revenue or expense is recorded on the balance sheet. The impact of these timing differences are tracked on the balance sheets as assets and liabilties, and the net of the changes in these accounts during this time period is the net changes in working capital that is added or subtracted to net income to calculate cash flows from operations.

For the exact details on which balance sheet accounts are used to calculate changes in working capital, consult How to changes in working capital capital affect a company's cash flow? or review the Foresight financial model for exactly how I do it.

Cash Flows from Investing #

The cash flows from investing detail the net cash spent to invest in the business, generally through capital expenditures, investments in the financial markets, and investing in subsidiary companies not consolidated into the company's statements.

In the Foresight models, generally the only cash flow from investing are capital expenditures.

Cash Flows from Financing #

The cash flows from financing detail the aggregate changes in cash from financing the business. This will typically record equity investments, new debt, repayments of the principal on debt, dividends, changes in owner's capital, stock repurchases, and other financing-related impacts.

For the users of Foresight models, it is typically new equity investments, new debt, and any debt repayments that are important in this section. The models do allow for dividends to investors, but it is not commonly used. This section fits most usecases for private companies, but if you have specific areas that require changes to this section, feel free to add them in or contact me for any questions.

Balance Sheet #

The balance sheet reflects the financial condition of the firm at a specific date in time, usually at the end of an income statement period. The balance sheet reports the company’s assets, liabilities, and shareholder’s equity, and a correctly calculated balance sheet (and consolidated financial statements) will hold true to a basic accounting premise:

Assets = Liabilities + Sharedholder's Equity

Thus, the balance sheet is divided into three section:

Assets are resources that the company owns or controls with the expectation that they will derive future economic benefit from them. The most obvious asset is cash, but they include a variety of current (short-term) assets, fixed assets, investments, and intangible assets, and this section on the balance sheet is typically broken out into current and long-term assets.

Assets are valued at historical cost (also called book value), and adjusted for aging, use, or improvements, through depreciation and other methods. For more about assets, Investopedia has a good summary.

In the Foresight models the default assets section consists of: Current Assets Cash Accounts Receivable, or money due in the future for services or products already delivered Inventory (if applicable), the value of products currently available for sale Work in Progress (if appplicable, and only for the Standard models and above), the value of products currently in manufacturing process but not yet available to sell Prepaid Expenses Long Term Assets Property, Plant and Equipment, the value of the cumulative capital expenditures over time Accumulated Depreciation, the cumulative of the depreciation expense to date Other Assets Other assets, not calculated but left as an input to use if relevant for your company The user inputs are on the Get Started or Settings sheets, and differ depending on the forecast method. Accounts Receivable's input is for Days Accounts Receivable, the average number of days between delivery of a product or service and when cash is received. Prepaid expenses is for the % of non-salary SG&A expenses. Inventory (and if using a Standard Model or above, Work in Progress) is calculated based on a number of assumptions around inventory purchasing behavior and desired stock levels. Depreciation is handled using the depreciation schedule and an input for # of months to depreciate an asset purchase over (using the straight-line depreciation method). All of these assumptions are 0 by default and can in many cases be left at 0. The exact balance sheet accounts for your company may differ, for example if you hold some cash in short-term investments, or other things specific to your business, and the model can be edited to fit your exact balance sheet accounts.

Liabilities #

Liabilities are financial obligations that have resulted from the business's operations. Liabilities are typically broken out into current and noncurrent (long-term) liabilities, and include things like loans, accounts payable, credit cards payable, mortgages, accrued expenses, and deferred revenues.

In the Foresight models, the typical balance sheet consists of: Current Liabilities
Accounts Payable, bills that have been received but not yet paid. This input is a percentage of current period SG&A. Accrued Liabilties (or accrued expenses), expenses that have been incurred, not billed, and not yet paid. This input is a percentage of current period SG&A. Deferred Revenues Liability, a liability created when cash has been received for services not yet provided. This is explained in the context of revenues under the income statement description above. Inventory Accounts Payable, or payments due for inventory (and work in progress, if applicable) that have been received but not yet paid for. Bad Debt Allowance, an allowance for accounts receivable that may not be collected, based on the company's historical percentage of accounts receivable that is written off and not collected. This is an input as the percentage of accounts receivable expected to be bad debt. Noncurrent Liabilties Long-term debt, which represents any debt that has been taken out, and is reduced over time by any debt repayments. This is calculated from the debt fundraising forecast and the debt repayment schedule.

Shareholder's Equity #

The shareholder's equity represents the financial value of the firm, measured only by the assets and liabilities on the balance sheet. The accounts here will typically consist of any equity investments, retained earnings, current period net income (or loss), and any owner's equity, if applicable.

The Foresight models use a fairly simple shareholder's equity section:
Owner's Equity, value of cash or equity put into the company by the owner, with a default input of zero Equity Investment, which is calculated from the fundraising and cash forecast Retained earnings, the cumulative value of net income (loss) to date. Many companies reset retained earnings every year and use net income (loss) for year to date; for simplicity's sake I use current period net income and let retained earnings grow over time Current period net income (loss), which is calculated from the income statement

As a note, I do not use "plugs" to force balance sheets to balance (meaning, to make assets = liabilities + shareholder's equity), and there is a check at the bottom of the balance sheet to make sure that the balance sheet balances according to that equation.

If the result of that check is anything other than zero, then the user should look at their statements to see what is not being reflected appropriately. Often the balance sheet fails to balance on the initial period if there is a beginning cash balance and no other accounts are recorded for the opening balance sheet, since that means there are liabilities or shareholder's equity values not being reflected. Usually the edit is to increase the retained earnings for the value of the cash, if no other opening balance sheet information is supplied.

Why build financial statements for your financial projections? #

Financial statements are critical for running a business, but not terribly meaningful until you have a business to run. And even then, for early-stage startups, the problem with financial statements is that they surface the wrong metrics for startups.

"Large companies need financial tools to monitor how well the are executing a known business model. Startups need metrics to evaluate how well their search for a business model is going." - Steve Blank

But while you can build a basic understanding of your business without creating a set of statements, you'll need financial statements when you're raising capital or once have a business to run. Investors will often want to see your projected statements so they can understand the business deeper and make sure you know the impacts of business strategies on the financial condition of a company.

The important thing to me about financial statements is not about creating them, but about using them, and knowing what they inform about a business and what they hide. For SaaS businesses, for example, the classic income statement is a start, but a deeper look at marginal recurring revenue (MRR) and its components are critical to understand the current state and future of the business.

To me, financial statements are important because they are a standard and accepted way of presenting your projections to people, but you can't stop there. There are many metrics to use to explain how your business operates that don't show up on a set of financial statements. LTV, CAC, website traffic, average order size, churn, cohort performance, MRR, any many other metrics are important operational metrics that explain how a business is performing in way that aren't captured by financial statements.

That's why I advocate a way of presenting your financials to investors that isn't just about a summarized income statement. Read more at How to pitch your financial projections ›

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Accounting for VAT in the Philippines

By: Garry S. Pagaspas

Value Added Tax (VAT) is imposed upon any person who, in the ordinary course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods. It is an indirect tax and the amount of VAT maybe shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. The BIR has mandated under  Revenue Regulations No. 18-2011  that VAT shall be shown separately on the  sales invoice (SI)  for transactions involving goods, or on the  official receipts (OR)  for transactions involving services, and failure to follow the same is subject to penalties (say, P1,000.00 per SI/OR). This new mandate makes accounting for VAT a bit easier and fun. I should not say its boring, because some technical rules would thrill your brain cells. The VAT you pay on purchases is normally called  “input VAT” , while the VAT you add on sales is normally called  “output VAT”.  In computing the  VAT due and payable  to the Bureau of Internal Revenue (BIR), you simply compute as follows:

  • Output tax from sales
  • Less: Creditable input taxes
  • Equals: VAT due and payable

The above formula is just a simple subtraction, but with the varying rules on output VAT, creditable input taxes, and other VAT rules on registration, filing of reports, makes the VAT system one-of-a-kind tax type for taxpayers. For purposes of accounting for VAT in the Philippines, you should note the following accounting areas that I wish to share sample entries. Of course, you can alter or change them to your desired account titles to fit your style for as long as they are comprehensible enough, because BIR did not prescribe the use of specific account titles. For better appreciation, I suggest you read further below with the  monthly – BIR Form No. 2550M , and  quarterly-BIR Form No, 2550Q.

For illustrative purposes, let us assume  the following transactions or figures, and to emphasize VAT journal entries, let us assume no withholding taxes applies, unless so stated.

Company Seller (VAT-registered) sold Company Buyer (VAT-registered) for P200,000, exclusive of 12% VAT, or a total of P224,000.00. Company Seller’s purchases amounted to P100,000.00, exclusive of 12% VAT or a total of P112,000.00.

I. Sales of goods or properties

In the monthly or quarterly VAT returns, sales of goods is classified into regular sales, zero-rated sales, exempt sales, and sales to government.  Sample accounting entries are as follows:

Regular sales and government sales:

  • Debit: Cash or Account Receivable- P224,000.00
  • Credit: Sales – P200,000.00
  • Credit: Output VAT – P24,000.00

Zero-rated sales or VAT-exempt sales:

  • Debit: Cash or Account Receivable- P200,000.00

Please note that VAT is shown separately through the Output VAT. In regular and government sales, VAT is added, while in zero-rated and exempt sales, not output VAT is imposed. The peculiar in government sales is the treatment of input taxes so we will deal with it later. Same is true with respect to zero-rated and exempt transaction because the difference lies in the treatment of input taxes.

II. Purchases of goods or properties, and services

Purchase of goods or properties, and services is a reciprocal of sale on the part of the seller. It could be with VAT for VATable, or without VAT for VAT-exempt or zero-rated transactions. Hereunder are sample entries.

Purchases with 12% VAT:

  • Debit: Expense or Purchases or Asset account – P100,000.00
  • Debit: Input VAT – P12,000.00
  • Credit: Cash or Accounts payable – P112,000.00
  • Credit: Cash or Accounts payable – P100,000.00

The only difference on the above sample entries lies on the recognition of the input taxes. For VATable purchases, input VAT is recognized separately because it represents an asset that has to be accounted for.

 III. Setting-up VAT payable or creditable input VAT

For monthly or quarterly filing of VAT returns, you may either have VAT payable or excess creditable input taxes.  For the first two (2) months of the quarter, you  use sales, purchases, and related VAT components for the monthly period only. For the quarterly return, you aggregate figures for the three (3) months of the quarter. Hereunder are the related sample entries:

Setting-up VAT payable:

  • Debit: Output VAT  – P24,000.00
  • Credit: Input VAT – P12,000.00
  • Credit: VAT due and payable – P12,000.00

Setting-up VAT payable is simply closing the Input VAT and Output VAT accounts to VAT due and Payable account. The resulting difference would represent the VAT due and payable. This of course, presumes that the Input VAT are all creditable against output VAT and is not subject to deferred input VAT rules like on capital goods.

Setting-up Creditable input VAT:

  • Debit: Output VAT  – P12,000.0
  • Debit: Creditable input VAT –  12,000.00
  • Credit: Input VAT – P24,000.00

In the above entry, the input VAT is more than the output VAT so the difference  is Creditable input Vat. It is a temporary asset account like input VAT and is used to refer to prior-period purchases with VAT.

Setting-up VAT payable applying prior-period creditable Input VAT:

  • Credit: Creditable input VAT –  Px x x
  • Credit: VAT due and payable – Px x x

IV.  Payment of VAT due and payable

Payment of VAT due and payable is the filing of the VAT returns within 2twenty (20) days from end of month for monthly returns using BIR Form No. 2550M, and within twenty-five (25) days from quarter-end for quarterly returns using BIR Form no. 2550Q.

Filing and Payment of VAT due and payable

  • Debit: VAT due and payable – P12,000.00
  • Credit: Cash – P12,000.00

The above entry is as simple as you pay a normal liability account.

V.  Special VAT rules

As I have mentioned above, special VAT rules makes it more challenging to account for VAT. These rules are mostly applicable on input VAT as to its availability for deduction or credit against output VAT such as in input VAT on capital goods costing P1M having a useful life of more than five years, final withholding of VAT on sales to government, refund of input VAT attributable to zero-rated sales, and expenses, and recording as expense of input VAT attributable to VAT-exempt sales transactions.

The special rules would be a more technical topic to deal with and may just ruin your basic understanding of the above simple sample accounting entries. I intend to discuss more of the special entries in my succeeding article on accounting for VAT. Of course, the above are sample illustrative entries only, and you are free to make enhancements. Account titles may vary depending on the chart of accounts adopted by your company.

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(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at ga************@ta************.ph .

Disclaimer : This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum  and participate therein.

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Value-added Tax (VAT)

Meaning of Value-added Tax

A value added tax  ( VAT ) can be explained as a type of consumption tax. From the buyer’s perspective, it is a tax on the purchase price. On the other hand, from a seller’s perspective, it is a tax levied on the “value added” to a product or service. The difference between these two amounts is remitted to the government by te manufacturer and the rest is retained by him to compensate the taxed which have been paid previously on the inputs.

In simple words, the value added to a product by any business is actually the sale price charged from the customer, less the cost of materials and similar taxable inputs. A Value Added Tax is somewhat similar to a sales tax in the fact that eventually only the end consumer is taxed. However, unlike a sales tax (which involves the customer being taxed only once), the value added tax involves collections and remittances to the government, as well as credits for already paid taxes occurring every time products are purchased by a business in the supply chain.

Principle of Value Added Tax

The basic principle to implement a Value Added Tax involves presuming that a business be obligated with some percentage on the product price less all taxes paid previously on the goods. For instance, if VAT rates were 10%, a fruit juice maker would pay 10% of the £5 per liter.

Basis for Value Added Tax

As per the method of collection, VAT can be invoice based or account based. The invoice based method of collecting VAT involves each seller to charge VAT rate on the output and passes a special invoice, indicating the amount of tax, to the buyer. Moreover, the buyers subject to VAT on their own sales regard the tax on purchase invoices as input tax and can also subtract the amount from their own VAT liability and the difference thus obtained is paid to the government.

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SAP Releases Integrated Report 2023 and Files Annual Report 2023 on Form 20-F with the U.S. Securities and Exchange Commission 

SAP Releases Integrated Report 2023 and Files Annual Report 2023 on Form 20-F with the U.S. Securities and Exchange Commission 

WALLDORF   — SAP SE (NYSE: SAP) today announced that it has filed the SAP Annual Report on Form 20-F for the year ended December 31, 2023, with the U.S. Securities and Exchange Commission (SEC), and it is accessible online at www.sap.com/investors/sap-2023-annual-report-form-20f . SAP also announced that the SAP Integrated Report 2023 is now available and accessible online at www.sapintegratedreport.com . The SAP Integrated Report 2023, which discusses the company’s social, environmental, and financial performance, is the 12th integrated report the company has issued. 

You can access PDF versions of the SAP Integrated Report 2023 and the SAP Annual Report 2023 on Form 20-F at our Investor Relations website www.sap.com/investor . A hard copy of the audited consolidated financial statements can also be requested free of charge by sending an email to [email protected] or via phone +49 6227 7-67336. 

Visit the SAP News Center . Follow SAP at @SAPNews . 

SAP’s strategy is to help every business run as an intelligent, sustainable enterprise. As a market leader in enterprise application software, we help companies of all sizes and in all industries run at their best: SAP customers generate 87% of total global commerce. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers’ businesses into intelligent enterprises. SAP helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition. We simplify technology for companies so they can consume our software the way they want – without disruption. Our end-to-end suite of applications and services enables business and public customers across 26 industries globally to operate profitably, adapt continuously, and make a difference. With a global network of customers, partners, employees, and thought leaders, SAP helps the world run better and improve people’s lives. For more information, visit www.sap.com .

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For customers interested in learning more about SAP products:   Global Customer Center: +49 180 534-34-24  United States Only: 1 (800) 872-1SAP (1-800-872-1727) 

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For more information, press only: Joellen Perry, +1 (650) 445-6780, [email protected] , PT Daniel Reinhardt, +49 (6227) 7-40201, [email protected] , CET SAP Press Room ; [email protected]  

This document contains forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations, forecasts, and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including but not limited to the risk factors section of SAP’s 2023 Annual Report on Form 20-F. © 2024 SAP SE. All rights reserved.  SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE in Germany and other countries. Please see https://www.sap.com/copyright for additional trademark information and notices.

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COMMENTS

  1. 16.4 Income statement presentation of income taxes

    16.4.2 Income statement presentation of interest and penalties. In accordance with ASC 740-10-45-25, the decision as to whether to classify interest expense related to income taxes as a component of income tax expense or interest expense is an accounting policy election. Penalties are also allowed to be classified as a component of income tax ...

  2. 1.1 Financial statement presentation and disclosure requirements

    S-X 4-01(a)(1) requires financial statements filed with the SEC to be presented in accordance with US GAAP, unless the SEC has indicated otherwise (e.g., foreign private issuers are permitted to use IFRS as issued by the IASB). Regulation S-K Item 10(e) prohibits the inclusion of non-GAAP information in financial statements filed with the SEC.

  3. IAS 1

    Overview. IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a complete set of financial statements to comprise a ...

  4. VAT Reporting & Impacts on Financial Statements

    VAT Policies and Accounting Policies: Businesses should disclose their VAT policies, including the method of accounting for VAT, any material judgments made, and the impact of VAT on financial statements. Presentation of VAT-related Figures: It is important to clearly present VAT-related figures on the financial statements, such as VAT ...

  5. About the Financial statement presentation guide & Full guide PDF

    Publication date: 31 Jan 2024. us Financial statement presentation guide. A PDF version of this publication is attached here: Financial statement presentation guide (PDF 14.4mb) PwC is pleased to offer our Financial statement presentation guide. This guide serves as a compendium of many of today's presentation and disclosure requirements ...

  6. Value-Added Tax (VAT)

    Value-Added Tax Around the World. Unlike other taxes on income or wealth, this tax is levied on consumption. It is a flat rate tax applied uniformly on all purchases, as opposed to a progressive income tax that increases tax rates for the wealthy or a regressive tax that increases tax rates on poorer people.. This tax system is used by more than 165 nations, making it quite common worldwide.

  7. Value Added Tax (VAT)

    Example: Calculating VAT. Consider the following example with a 10% VAT assessed at each stage. A bike manufacturer purchases raw materials for $5.50, which includes a 10% VAT. After completing the manufacturing of the parts, they are purchased by the assembler for $11, which includes a VAT of $1. The manufacturer receives $11, of which he pays ...

  8. PDF Guide to annual financial statements

    or totals required by IAS 1 Presentation of Financial Statements. Note 45 has been significantly expanded to describe management's current assessment of the possible impacts that the application of IFRSs 9, 15 and 16 will have on the Group's consolidated financial statements in the period of initial application. Appendices

  9. PDF IAS 7 Cash Flow Statements (August 2005)

    IAS 7 does not explicitly address the treatment of VAT. The IFRIC noted that it would be appropriate in complying with IAS 1 Presentation of Financial Statements for entities to disclose whether they present their gross cash flows as inclusive or exclusive of VAT. The IFRIC decided that it should not develop an Interpretation on this topic ...

  10. PDF Presentation of Financial Statements IAS 1

    statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Scope. An entity shall apply this Standard in preparing and presenting general purpose financial statements ...

  11. IAS 7

    Issue. The IFRIC considered whether it should add to its agenda a project to clarify whether cash flows reported in accordance with IAS 7 Statement of Cash Flows should be measured as inclusive or exclusive of value added tax (VAT). There was evidence that different practices will emerge, the differences being most marked for entities that adopt the direct method of reporting cash flows.

  12. 4.1 Presentation of Financial Statements

    Under both IFRS Accounting Standards and U.S. GAAP, a complete set of financial statements consists of the following: a statement of financial position, a statement of profit or loss and OCI, a statement of cash flows, a statement of changes in shareholders' equity, and accompanying notes. The table below shows the key differences between the ...

  13. PDF Value Added Tax: Its Implementation and Implications

    The VAT is a feature of tax systems in over 150 countries. The VAT is an ideal revenue instrument for the GCC (for div. purpose). VAT accounts for a large share of tax revenue. Typical rates are set up between 5% to 25%. Global average VAT Rate is 12%. The average rate in Africa (low income countries) is 15.5%.

  14. Do Tax Liabilities Appear in the Financial Statements?

    Reviewed by. Charlene Rhinehart. Taxes appear in some form in all three of the major financial statements: the balance sheet, the income statement, and the cash flow statement. Deferred income tax ...

  15. 2.3 General presentation requirements

    2.3 General presentation requirements. Publication date: 30 Sep 2022. us Financial statement presentation guide. The rules that govern balance sheet presentation are intended to aid comparability between reporting entities. Among other areas, reporting entities should consider the number of reporting periods presented, as well as chronology.

  16. Explaining Financial Statements

    The balance sheet reports the company's assets, liabilities, and shareholder's equity, and a correctly calculated balance sheet (and consolidated financial statements) will hold true to a basic accounting premise: Assets = Liabilities + Sharedholder's Equity. Thus, the balance sheet is divided into three section:

  17. PDF Accounting for VAT

    Accounting for VAT CA. Rajkumar S Adukia B.Com(Hons.) FCA, ACS,MBA, AICWA, LLB ,Dip In IFRS(UK) [email protected] www.caaa.in 9820061049/9323061049 ... and Presentation of Financial Statements, issued by the Institute of Chartered Accountants of India, is relevant which states that "Income is increase in economic benefits during the ...

  18. PDF CHAPTER 1 Key accounting and financial reporting issues- statement of

    07 Foreword | ToC | Chapter 1 | Chapter 2 | Chapter 3 • Components of cash and cash equivalent: An accounting policy should provide details of what constitutes cash and cash equivalents for the purpose of the statement of cash flows.For example, Ind AS 7 considers bank overdrafts which are repayable on demand to be an integral part of the entity's cash management system, accordingly these ...

  19. VAT Presentation

    Presentation on value added tax (3) north south university. Value Added Tax (VAT) in UAE ANAND TP. Value added tax Rakibul islam. Corporate tax (India) Shouryadipta Ghosh. Vat theory sjykmuch. Value added tax Kulbeer Bumrah. VAT Presentation - Download as a PDF or view online for free.

  20. Accounting for VAT in the Philippines

    In the monthly or quarterly VAT returns, sales of goods is classified into regular sales, zero-rated sales, exempt sales, and sales to government. Sample accounting entries are as follows: Regular sales and government sales: Debit: Cash or Account Receivable- P224,000.00. Credit: Sales - P200,000.00. Credit: Output VAT - P24,000.00.

  21. Value-added Tax (VAT)

    A value added tax ( VAT) can be explained as a type of consumption tax. From the buyer's perspective, it is a tax on the purchase price. On the other hand, from a seller's perspective, it is a tax levied on the "value added" to a product or service. The difference between these two amounts is remitted to the government by te ...

  22. Financial Reports

    In the "Financial Reports" section, you find the financial publications of VAT, namely the summary trading updates for the first and third quarter of the year plus the full financial reports for the half- and full-year-closings since the IPO in April 2016. 2023. 2022. 2021. 2020.

  23. 16.2 Balance sheet presentation of deferred tax accounts

    16.2 Balance sheet presentation of deferred tax accounts. Publication date: 30 Oct 2021 (updated 30 Sep 2023) us Financial statement presentation guide. ASC 740 provides specific guidance for the balance sheet presentation of deferred tax accounts and any related valuation allowance. 16.2.1 Principles of balance sheet classification.

  24. PDF ANNUAL REPORT 2021

    VAT is the leading supplier of high-vacuum valves and related equipment used to manufacture semiconductors, displays, solar cells and many other digital devices. ... Financial Statements 75 Shareholder Information 135 Technical Glossary 140 00_E_VAT_AR_Berichtsteil_2021 [P]_1797111.indd 1 02.03.22 17:50. 2 VAT GROUP AG

  25. Presenting the income statement

    1:34 - The significance of income statement presentation and classification in portraying financial performance, including general reporting considerations and the interaction between income statement presentation and non-GAAP metrics 8:50 - The SEC's rules on the form and content of income statements, including considerations for financial institutions

  26. SAP Announces Q4 and FY 2023 Results

    The SAP Integrated Report 2023, which discusses the company's social, environmental, and financial performance, is the 12th integrated report the company has issued. ... A hard copy of the audited consolidated financial statements can also be requested free of charge by sending an email to [email protected] or via phone +49 6227 7-67336. ...

  27. 14.3 Lessors

    Taxes (): ASC 842 permits lessors to gross up the income statement by presenting (1) sales or other similar taxes in revenue when such taxes are reimbursed by a lessee to the lessor and (2) the associated tax payment to the taxing authorities as expense. However, lessors can also make an accounting policy election to exclude from revenue and associated expense such taxes assessed by a ...

  28. 14.2 Lessees

    Financial statement users may view right-of-use assets differently than other assets; therefore, finance lease and operating lease right-of-use assets should either be presented separately from each other and other assets on the balance sheet or disclosed in the notes to the financial statements along with the balance sheet line items in which those assets are included.