5 basics of preparing financial statements

5 basics of preparing financial statements

Financial statements are important documents that provide a comprehensive overview of a company's financial condition and performance. It serves as a very useful tool for decision making. Profitability assessment and evaluating the financial health of an organization. In this article, we will delve into the basics of preparing financial statements. It emphasizes the main elements and their importance.

Importance of financial statements

The preparation of financial statements is important to various stakeholders. Including investors, creditors and executives as this is useful information for decision making. Investors use financial statements to evaluate a company's profitability and growth potential. Creditors will analyze the financial statements to evaluate the company's ability to repay debts. And management will rely on the preparation of financial statements to monitor the company's performance and plan for the future.

1. Balance sheet

A balance sheet is a snapshot of a company's financial position at a point in time. It shows assets, liabilities and shareholders' equity. Assets include cash, accounts receivable, inventory, property, etc. Liabilities include creditors, loans, and other obligations. Equity represents the remaining interest in a company's assets after deducting its liabilities. The balance sheet helps analyze liquidity. and overall financial stability

2. Income statement

The income statement reflects a company's income, expenses, profits, and losses over a period of time. It shows the net income or loss generated by the business. Revenue consists of sales, interest, and other operating income. Expenses include cost of sales, salaries, rent, utility expenses. and other operating expenses The income statement emphasizes the profitability and operating efficiency of the organization.

3. Cash flow statement

The cash flow statement shows the inflow and outflow of cash and cash equivalents over a specified period. It is divided into three sections:Operational Activities. investment activities and Financial Activities Operating activities consist of cash generated from core business operations. While investing activities involve cash flows from investing in assets or securities. Financing activities include cash flows from borrowing, repaying debt, and issuing or repurchasing stock. and dividend payment The cash flow statement provides insight into a company's ability to generate and use cash efficiently.

4. Statement of changes in shareholders' equity

The statement of changes in shareholders' equity summarizes changes in shareholders' equity over a period of time, including share capital, retained earnings, and other comprehensive income. This statement reveals factors that affect the shareholders' equity balance, such as net income or loss. Dividend payment Issuing or buying back shares and changes in accounting policies It helps track the growth or decline of equity over time.

5. Notes to the financial statements

Notes to financial statements are important disclosures that accompany the main financial statements. By providing additional details, explanations, and clarifications about various items. Accounting policies, emergencies and other information related These notes help increase transparency and understanding of the financial statements.

Preparing accurate and reliable financial statements is essential for businesses to measure their financial performance and make informed decisions. Balance sheets, income statements, cash flow statements. Statement of changes in shareholders' equity and notes to financial statements It provides a comprehensive overview of a company's financial health. Understanding these basics is important for individuals involved in financial analysis, investors, creditors, and other stakeholders. With financial statement preparation expertise, businesses can effectively manage their resources and plan for the future.

By FDI Accounting & Advisory is a financial statement preparation and accounting company with experts, experience and knowledge. More than 25 years of ability to help manage your accounting matters easily.Monthly service and annual service Whether it is accounting. Monthly financial statements Submit monthly taxes in forms P.N.D. 3, 53, 54 and P.P. 30, 36. We also provide account closing services, financial preparation, and others. You can check and request our services. here No cost!

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