What is a statement Financial Report?
Communicating a financial is known as a Financial reporting. Financial reports used in Financial reporting are records that disclose financial information about a company’s activities and current status of business.
The major components in Financial reporting are:
Balance Sheet
A balance sheet portrays the value of assets owned by an organisation, liquidity and solvency of the organisation. The balance sheet is utilised to study the ability of the organisation in meeting its financial goals.
Statement of Profit and Loss
This document illustrates an organisations total income, expenses, and profits/losses over a certain period of time. A profit and loss statement also provides information on the operations of the organisation.
Cash Flow Statement
The cash flow statement merges the balance sheet and the income statement to highlight business activities which include operating, investing and financing activities that involve inflow or outflow of taxes.
Notes and Schedules
This provides additional information explaining different parts of the financial statement, such as risk, uncertainties or accounting policies that affect the organization.
The basic objective of financial reports is to provide information about the financial health, status, growth and modifications in the financial position of an organisation that will be useful to a wide range of stakeholders in making business decisions.
Why do you need financial reports?
Reports provide information to the following stakeholders:
Owners, managers, and employees
These require financial reports to make important business decisions that will help sustain the organization’s continued operations.
Investors/potential investors
These enable them to utilize financial reports to assess the overall feasibility of investing in a particular business. Financial reports also help in analysis for making better investment decisions.
Financial institutions
They utilize financial reports to decide whether or not to grant an organization loans that may be needed to expand or meet working capital needs.
Different countries have developed indigenous accounting principles, making international comparisons of an organization’s financial report difficult to analyze. To ensure a universal uniformity between financial reports prepared by different companies in different countries, a set of guidelines and rules are used which is commonly referred to as Generally Accepted Accounting Principles (GAAP). These are a set of accounting guidelines which provide the foundation for the preparation of financial reports.
In brief, Financial reports are designed to be easily grasped and understood by an audience who have a working knowledge of business and accounting activities and who are willing to study the respective information and implement it accordingly.
