4 Main Financial Statements
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4 Main Financial Statements
Accounting is a term referring to all of a business’s financial transactions. A well-run accounting department have processes and procedures for financial statements, accounting management, and data processing. Accounting department is responsible for the preparation of the financial statements, as well as ensuring that they are accurate and comply with the rules.
However, the actual reason for examining your financial statements is that it provides information about the net profit, financial position and cash flows to management. You’ll use financial statements as a guide to what’s possible if you want to raise funds, develop a new product, build a new office, or make any other move to grow your business.
A Dynamic Report
The majority of organizations prepare a periodic financial statement for investors and shareholders. A financial statement is a dynamic report that contains a wealth of data. This information is available for analysis and application to your company’s goals. Being proactive instead of reactive necessitates a full understanding of each statement.
The financial accounts reflect the impact of business accounting records on the firm. The many sorts of financial statements are not separate from one another but intertwined.
The basic financial statements provide insight into your overall financial viability, so understanding them is vital. We’ll go over the 4 main financial statements and how they can help your company move forward in this post.
1. Balance Sheet
A balance sheet is a financial statement that shows the assets, liabilities, and equity of a business at the end of a fiscal year. Regardless of the size or nature of the firm, the balance sheet is an official document that follows a traditional accounting framework.
The basis for assessing returns for investors and evaluating a company’s financial framework is the balance sheet. In a nutshell, it depicts a company’s financial status at a specific point in time.
On the balance sheet’s left side, you can see the assets. On the right, you’ll see a list of liabilities and equity.
2. Income statement
One of the most essential financial statements for summarizing a company’s financial health over a specific accounting period is the income statement. The income statement gives an overview of an entity’s operational performance over a specific period, as well as statistics on income generated and expenditure incurred.
Income statement helps to calculate net profit. Net profit is the amount money left after subtracting a company’s total expenses from its total revenue for a specific period of time. The profit and loss statement is another term for it.
In addition, income statements provide earnings per share (or “EPS”). This calculation indicates how much money shareholders would get if the firm chose to pay 100% of the period’s net earnings.
3. Cash flow statement
Cash flow statements show the inflow and outflow of funds. This is critical because a business must have enough cash flow to pay its bills and acquire assets. The cash flow statement illustrates where the money comes from. It also allows you to keep track of how much money comes in and goes out. It is generally used to produce a money projection to plan for the short term.
Operating, investment, and financial operations are all sources of incoming cash for a company. The statement also shows cash inflows, business-related expenses, and investments at any particular time.
4. Statement of retained earnings
The statement of retained earnings includes a specified period and shows the dividends paid to shareholders from earnings as well as the earnings retained by the firm. This is the financial statement being used the least.
The income statement and balance sheet are frequently seen by top management when financial statements are presented internally since they are relatively simple to prepare.
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