There are at least 5 reports included in the main financial statements that must be prepared by the end of the year. What are they? Let’s see the following description.
The Financial Statement is a report showing the financial condition of a company in a specified date (for balance sheet) and certain period (for profit and loss).
In general, purposes of Financial Statements in general are as follow:
- Provides the business information and amount of asset
- Provides the information of the amount of liabilities and capital
- Provides the information regarding to the type and amount of revenue
- Provides the information regarding the amount and type of costs
- Provides the information regarding to the changes of company’s assets, liabilities, and capital
- Provides the information regarding the management’s performance within specified period
The data presented in the Financial Statement is a combination of:
- Recorded facts
- Accounting convention and pos-tule
- Personal judgment
Some limitations in Financial Statements are:
- Creating financial statement by historical
- Financial reports for public
- The preparation process is closely related to certain considerations and estimations
- Financial reports are conservative to meet uncertainty condition
- Financial reports always refers to the economic view in responding current events, not the formal nature.
The evaluation of Financial Statement is first conducted by internal party from the company. The subsequent evaluation will be conducted by a licensed public accountant. The accountant will provide an assessment after examining with the established standards and inspection procedures. Fair or unreasonable opinions will be provided if the Financial Statements are prepared in accordance with the usual accounting principles and have been applied consistently from year to year.
The parties concerned with the Financial Statement are:
- Owners, to review the business growth and development including the dividend earned
- Management, to review the performance in specified period
- Creditors, to assess the company viability in obtaining loans and ability to pay it
- Government, to assess the company’s compliance to meet its obligation to government
- Investors, to assess the business prospect, the capability to provide dividends and share value as determined.
Types of Financial Statements:
1 Balance sheet
2 Income statement
3 Capital changes report
4 Cash flow statement
5 Notes of financial statement
- Balance Sheet is an attachment that shows the amount of assets , liabilities (debt), and company capital (equity) of the company at a certain time.
Complete information presented in the balance sheet includes:
- Types of Assets (Assets)
- Amount of each asset
- Types of liability
- Total amount of each type of liability
- Types of capital (Equity)
- Amount of each type of capital.
The balance equation is obtained by using the following formula:
Assets = Liabilities + Capital
There are two types of Balance Sheet:
- Horizontal (Account Form)
- Report or Vertical Form (Report Form)
- Profit Loss report is the report that informs the business condition in specified period which is reflected from the received income and spent expenses. Therefore the company will recognize the condition whether in a state of profit or loss.
The information presented in the income statement includes:
- Types of income earned in a period
- Amount received in each income
- Total revenue
- Types of costs or expenses in a period
- The amount of each cost or expenses
- Total cost spent
Business results obtained by reducing the amount of income and the cost of the difference is called profit or loss.
The Income Statement can be arranged in two forms;
- Single Shape (Single Step)
- Multiple Steps
- The change of capital statement, tells company’s current asset and the reasons of capital changes.
The information provides include:
- Types and amount of current capital
- Amount of each type of capital
- Amount of capital changes
- The causes of capital changes
- Amount after capital changes
- The Cash Flow Statement is a report showing incoming cash inflows and outgoing cash (expenses).
- Notes on Financial Statements are reports made related to the Financial Statements presented. This report provides necessary information regarding to the existing Financial Statement clarify the causes.
The purpose and benefits of Financial Statement analysis are:
- Recognize the company’s financial position in a certain period
- Recognize the company’ weaknesses
- Recognize the company’s strength
- Establish the improvement to assess the management’s performance
Steps taken in financial analysis are:
- Collecting the financial statement and the necessary data as complete as possible
- Perform measurement and calculations with certain formulas
- Interpreting the calculation result and measurement
- Reporting the company’s financial position
- Provide the required recommendation in accordance to the analysis result
