Financial Statements is official documents of a corporation, person, or company. They are used for many purposes but most importantly to assess the financial health of the company and its ability to continue in operation. The financial statements help in predicting the future performance of the company and help in determining the viability of that particular business.
Financial statement consists of two major parts namely, Income statement and Balance sheet. The first part contains the data on the income of a company and its financial status. This includes the statement of income, the statement of earnings by the individual units, income tax returns, and balance sheet of the company. These records can be accessed and printed in the official files of the corporate office. The second part of the document contains the balance sheet, which is a table showing the assets and liabilities of a company.
The assets of a company are termed as tangible assets and include such things as land, plant, buildings, machinery, and the like. These assets do not include any intangible assets. These assets are called as financial assets because they represent the income of the company. However, there is one thing that these financial assets do not represent.
The liability of the company is another part of the financial statement. The liabilities of a company consists of the liabilities of each and every entity under the control of that company. These liabilities are called as financial liabilities because they are due to the losses incurred by the entity. These are also termed as liability for the shareholders.
The last part of the financial statement is the cash equivalents. This is the amount that a company is able to liquidate the assets at in the absence of any further investment. This figure is available at the end of each fiscal year. In the past, the total cash equivalents was known as net worth. However, in most countries this is now known as free cash or the total of available resources after paying off debt.
As a general rule, the financial statements of a company are prepared after the complete accounting procedures have been followed. All the data relating to the company’s activities is given in such a way that it will enable an accountant to properly analyze the financial position of the business.
There are many reasons that can lead to an accountant to write a financial statement. One of these reasons is the need to prepare for tax purposes.
Another reason that may cause an accountant to write financial statements is that the accounting practices of the company have changed over the years and the information that is provided is not applicable to the present day. For this reason, the financial statement needs to be prepared by an accountant who is in a position to understand the changing techniques.
Sometimes, the accounting methods used for the preparation of the financial statement may change. This may occur if the company grows and acquires new assets or other items that affect the way that the firm accounts for these items.
Another important factor that can affect how the company records its transactions is the accounting policies of the accounting firms that are employed by the company. An accountant who is employed by such firms must adhere to the policies set by the company or else his services would be deemed ineffective.
There are several sources of information that are considered for the preparation of a financial statement. The financial statements are based on the financial statements of the company as well as the financial statements of other entities under the control of the company. These sources include: bank statements, financial statements of the subsidiary companies, balance sheet, and accounts receivable and accounts payable statements, and balance sheet, income statement, and statement of cash flow of the company.
When it comes to the information provided by financial statements, it has to be reliable. It should be able to provide accurate and comprehensive information about the financial position of the company. The information that is contained in the financial statement should be such that an accountant is able to use it effectively.