What are financial statements? Let's find out

What are financial statements? Let's find out

Financial statements are important documents that provide insight into a company's financial condition and performance. Whether it is reported by balance sheet to profit and loss statement, retained earnings statement, cash flow statement, statement of changes in shareholders' equity, accompanying statement, or notes to the financial statements. It plays an important role in decision making for various stakeholders. Including investors, creditors and executives, and in this article FDI A&A will delve into the importance of financial statements and explore the main elements that make up financial statements.

Objectives of preparing financial statements

Financial statements are prepared with the objective of providing information about the financial position, operations, and changes in the financial position of the business that are beneficial to users of the financial statements. Using data to make business decisions In addition, financial statements also show information from past periods so that users of financial statements can compare their financial positions. Performance results and changes in the financial position of the business for different periods.

What does the financial statement consist of?

1. Balance Sheet

Balance sheet, also known as Statement of financial position It provides an overview of a company's financial position at a given point in time. It shows the company's assets, liabilities, and shareholders' equity. Assets represent what a company owns. While debt indicates the company's obligations. Equity reflects the remaining interest in assets after deducting liabilities. By analyzing the balance sheet This makes it possible to assess liquidity. solubility and financial stability of the company

Assets = Liabilities + Equity

2. Statement of comprehensive income (Income Statement)

Statement of comprehensive income Also known as the income statement, it is a summary of a company's income, expenses, profits and losses. Demonstrates the company's ability to generate revenue and manage expenses. Income Statement Audit Stakeholders can evaluate a company's profitability, efficiency, and performance. It also helps in comparing performance across time periods.

Income – Expenses = Profit/Loss

3. Statement of cash flows

cash flow statement Shows the inflow and outflow of cash and cash equivalents. and help understand a company's ability to generate cash and manage liquidity. By dividing cash flow into 3 types:

Operating activities Consists of cash flow from the core operations of the business.

Investment activities Consists of investing in assets or securities.

Financing activities involve cash flows related to paying debt, equity, or paying dividends.

4. Statement of changes in shareholders' equity

Statement of changes in shareholders' equity It summarizes changes in shareholder equity over a given period. Includes such items as net income, dividends, and capital changes. This statement provides insight into the sources and uses of funds. and track how a company's capital position has developed over time.

Who is making financial statements beneficial to?

  • The business itself : Financial statements provide a business with important information about its business performance, such as profit and loss, income, expenses, and various financial ratios. That helps in strategic planning and making business operations more efficient.
  • Investors : Financial statements are important information that investors use to make investment decisions. It helps in evaluating the risks and expected returns.
  • Bank and Insurance Documents : Banks and insurance companies use financial information to assess a business' financial risk. To provide appropriate loan or insurance services
  • Government : Uses financial information for tax audits and business expense assessments. for legal supervision and surveillance
  • Employees : Preparation of financial statements helps employees understand the financial health of the company. and can adapt to the goals and operations of the company as specified

Financial statements are things that reflect the financial reality of a company. and analysis requires careful consideration and interpretation. Stay informed and make informed decisions!

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