Every business will definitely be struggling with financial recapitulation every year. That is why business actors must understand the meaning of financial statements.
Accurate and thorough financial reports are important things that every businessman must pay attention to. However, do you already know the meaning of financial statement in outline, along with the components inherent in them?
Definition of Financial Statements
By definition, financial statements are documents prepared by the management of a company to provide an overview of financial performance and position for a certain period. A financial report is usually prepared not only for internal needs, but also for users outside the company, such as investors, shareholders, and creditors.
Important Information in Financial Statements
As the primary source of financial information, especially for corporate decision makers, the accounting department will place a high emphasis on the relevance and accuracy of each financial record. There are at least four financial information that will be made by the accounting or finance department of a company, namely:
- Income statement
The income statement is a type of financial statement whose existence is very important for a business.
This report can also be referred to as a Profit Loss Statement, is a report that contains information about the income and expenses of a business in a certain time or period.
This report is included in the four main financial statements of the company and serves as a link between the two balance sheet statements.
The purpose of this report is to see how the conditions and achievements of a business entity are, whether it leads to profit or loss.
Preparation of this report is usually done at the end of the month or year in accordance with the policies of each company. The time period for this report recapitulation is usually done every three months or every year.
- Balance Sheet
A statement of financial position or balance sheet is a report that shows what assets a company owns and who has claims on those assets as of a specific date. In other words, a balance sheet is a summary (an overview ) of the company’s financial position in a certain period.
Understanding the balance sheet or statement of financial position is a financial record that reports the total assets, liabilities (debt), and capital (equity) of the company’s shareholders. The balance sheet is one of the five (5) types of key financial statements of a company, each of which is related to one another.
- Cash flow statement
A cash flow statement is a report that shows in detail the cash flows of cash receipts and disbursements from a business or business.
The cash flow includes the total incoming cash in the form of cash or cash investments from you as a businessman. In addition, the amount of cash issued such as expenses to be paid and debts.
- Statement of changes in equity
This report documents all changes in equity during the reporting period. These changes include the issuance or purchase of shares, dividends earned, and profit or loss. Since the information in it is of little use to the company’s management team, this document is usually not included when financial statements are issued internally.
Structurally, each financial report has a header containing the name of the company or entity, the name of the report, and the date or time covered by the report. The information provided in it is financial in nature and is expressed in units of money, so that the financial effect is attached to every transaction and event that has occurred (historically).
In conclusion, broadly speaking, financial statements are written records of the financial situation of a business.
These include standard reports, such as balance sheets, income statements, and cash flow statements. The figures presented in each of these reports play a major role in strategic planning, decision-making, and estimation of the probability of failure.