Financial statements are statements that present a factual view of a company's financial performance at the end of an accounting year. Represents the official record of financial transactions that occur in an organisation. These statements help information users determine the company's financial position, liquidity and performance.
What is a financial statement and explain in detail.pdf
1. What is a financial statement and explain in detail?
Meaning of Financial Statements
Financial statements are statements that present a factual view of a
company's financial performance at the end of an accounting year.
Represents the official record of financial transactions that occur in an
organisation. These statements help information users determine the
company's financial position, liquidity and performance.
Use and Limitations of Financial Statements
A company's financial statements perform several important functions.
First, it reflects the actual state of the organisation. It also helps capture
important financial information. It is used by many, from shareholders
and investors to governments and lenders. Let's understand some of the
uses of Financial Statement Preparation in Washington.
Use of Financial Statements
1. Resolving the Management Gap
Financial statements primarily reflect a company's financial performance.
They show the company's profits and liabilities.It shows how successful
your company's decisions are. Because shareholders have access to
these statements, they can evaluate the company's performance. This
further helps close the gap between management error and owner
expectations.
2. Getting credit from a lender
All businesses need money to function. To do this, they have to rely on
lenders such as banks and financial institutions. Personal Financial
Statements in New York play a big role in this purpose. Investors can
use it to make informed decisions because it shows a company's
liabilities, liabilities, and earnings.
3. Use for Investors
Investors widely use a company's financial statements to evaluate its
financial condition. This gives you an idea of what your company's
solvency will be in the long run. Therefore, the better the financial
position of the company, the more investments it receives.
2. 4. Use for Government
Government policy towards businesses relies heavily on financial
statements. This is because these statements generally describe how
the Company operates. Governments can use this information to make
tax and regulatory policy decisions.
5. Use of stock exchange
Regulators such as SEBI and stock exchanges such as BSE and NSE
also use financial statements for a variety of reasons. SEBI may use it to
evaluate the internal workings of companies to ensure investor
protection. Stock advisors also need to construct quotes. They are a
great source of information for stock traders and investors.
6. Investment information
Company shareholders rely on these statements to understand how their
investments are performing. If the company is making a profit, it may
decide to invest more money. Conversely, stagnant gains or losses can
also trigger them to drag down. Despite all these uses of financial
statements, there are also some limitations.
Limitation of Financial Statements
1. Does not reflect current financial situation
First, financial statements do not show how well a company is
performing in the current period. Due to the fact that it is prepared at the
end of each fiscal year. Therefore, we only depict performances from the
previous 12 months. As the purchasing power of money changes, so do
the values of assets and liabilities.
2. Possibility of prejudice
Financial statements do not always accurately represent a company.
This is because many of the accountants rely on their personal
judgments, conventions and internal procedures.
3. Lack of key information
3. Accountants can overlook important information when preparing financial
statements. For example, the nature of the contracts signed by the
company is important information, but not mentioned in the annual
report.
4. Lack of qualitative information
Companies present figures and financial information in their annual
reports, but most of the qualitative data is omitted. Therefore, details
such as a company's labour relations and employee productivity are
generally not included in these statements.
5. Lack of details
Financial statements may state the total value of assets, but do not
indicate the nature of these assets. Similarly, finer details like this remain
mostly unresolved.
Importance of Financial Statements
The importance of financial statements prevails in the service of
persuading the various interests of various groups such as creditors, the
public, management, etc.
Importance to management: The increasing scale and complexity of
factors affecting business functions require a scientific and strategic
approach to managing modern business challenges. Management
teams need up-to-date, accurate and structured financial data for their
purposes. Financial statements help executives understand the
progress, prospects, and status of their business counterparts in their
industry.
Materiality to Shareholders: Where management of the company is
separated from control. Shareholders cannot participate in the
day-to-day Business Accountants. However, the results of these
investigations must be disclosed to shareholders in the form of financial
statements at the shareholders' meeting.
What is the purpose of financial statements
● The main purpose of financial statements is to provide and record
information about a company's financial position and changes in its
financial position. Decision makers use this information to grow the
business economy.
4. ● There are many individuals and groups that benefit from a financial
statement review. Sharing the financial statements of the company
with management and outsiders might assist the company in
making future financial decisions and goals.
● Executives use financial statements to make decisions about
future growth or changes that benefit earnings. Knowing your
financial status and operating cash flow allows you to make
day-to-day decisions that affect the future of your organisation.
● Financial statements are used by stakeholders to analyse the risk
and sustainability of investment returns. This information can be
used to make individual investing decisions.
● Potential investors use financial statements in the same way as
shareholders, but as a tool to assess the risks of investing in a
company now or in the future. Using current earnings, financial
statements allow you to anticipate future dividends. In addition, risk
factors can be assessed based on the information in the financial
statements.
● Top Accounting Firm in Washington is a professional accounting
firm and should be appointed regularly to audit your business. If
there are any defects or issues requiring resolution, the Company
will be alerted accordingly.
● Banks/lenders use financial statements to assess the risk of
lending more to a company. Your creditworthiness and financial
soundness can be determined by reviewing your financial
statements. Most loans must be backed by assets and equity,
preventing bad debt.
● Vendors, like banks and lenders, use financial statements to
assess credit quality losses. Before opening a line of credit, the
supplier must ensure that the company is in good financial
condition and has a history of paying down debt in a timely
manner. This is especially true if your supplier provides special or
high value items that are essential to your company's success.
● Customers are on opposite ends of the spectrum and use financial
statements to determine if a company is a good supplier to them.
Examining a company's financial strength and stability might assist
predict a steady supply of required products.