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Financial Statement Of An Organisation

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Question:

Discuss about the Financial Statements and Cash Flow Statement.
 
 

Answer:

Financial Statements

Meaning of Financial Statements

It is the company’s records relating to financial activities. It is prepared by the management of the company. It is also called as Financial Report.

Purpose of Preparing Financial Statments

It is prepared to provide the information on the activities carried out by the entity to the financial statements users.

Users  include Shareholders, managers, creditors, employees, banks or other financial institutions, government departments, investors etc.

Features of Financial Statement

Financial statements must be:

  • Easy to understand by the readers who have the basic knowledge of business.
  • Reliable that is information provided must be trustworthy and should not provide any fake information.
  • Relevant that is only useful information should be included.
  • Comparable that is its information can be compared with other entity’s financial statements information.
  • Verifiable
  • Available on time to the decision makers for taking decisions.

In simple words, we can say financial statements should only provide true and fair information about its company’s financial activities (IASB, 2017).

Parts of Financial Statements

Balance Sheet:

It is also called as Statement of financial position.
It is prepared at the last date of the reporting period.
Under Balance sheet, information about organisation’s assets, liabilities and stockholder’s equity are disclosed.

Income Statement:

It is also called as Statement of profit or loss, Statement of comprehensive income, Profit and loss report, statement of revenue and expense etc.
It is prepared for the whole accounting period.
Information about company’s sales/revenues, incomes, expenses, profit/loss etc. for the whole accounting year are disclosed under income statement.
In other words, we can it provides information about operation activities of an entity.
Statement of changes in Equity:
It is also called as statement of retained earnings or statement of equity.
It discloses information about changes in company’s equity during the reporting period.

Cash Flow Statement:

It is prepared for the whole accounting period.
It provides information on activities relating to cash flow which are operating activities, investing activities and financing activities.
 
 

Notes to Accounts:

It is also considered to be the part of the financial statements which provide detailed information on company’s assets, liabilities, stockholder’s equity, incomes, expenses, revenues etc.
It is prepared at the end/ footnotes of financial statements.

Uses of Financial Statements

Financial statements are useful to many people. These are:

Managers and owners of require financial statements so that they can take business and economic decisions effectively and efficiently.

Shareholders require financial statements so that they can take investment decisions that is to knowwhether it is beneficial for further investment or not.

Employees require financial statements because to know whether it is beneficial for them to remain in the company or not.

Creditors require financial statements to know about company’s creditworthiness.

Banks and other financial institutions require financial statements so that they can know about company’s repayment status, creditworthiness status and whether it is beneficial to them to grant loan or debt securities (IASB, 2017).

Auditing Implications

Financial Statements are required so that it can be audited by the auditing firms or by an independent accountant to provide opinion on its statements whether they represent true and fair view or not. Auditor’s report is to be reported under company’s annual report.

Refulatory Standards

Financial Statements have to be prepared as per prescribed guidelines such as United States prepare financial statements as per US GAAP (General accepted accounting principles), Australia, Canada etc. prepare financial statements as per IFRS (International Financial Reporting Standard).

INclusions in Annual Report

Annual report shall contain the overall performance of the company including its future goals and strategies. It also contains the financial statements.

How to Create Financial Statements

Earlier it was created on hundreds of pages but today it is prepared electronically in PDF or HTML file. Nowadays, XBRL format is mandatory for the submission of its financial statements.

 

References

International Accounting Standard Board.(2017).Preparation of Financial Statements. retrieved on 12 April 2017 from https://www.iasplus.com/en/standards/ias/ias1.

International Accounting Standard Board.(2017). The framework for the preparation and presentation of financial statements. retrieved on 12 April 2017 fromhttps://www.iasplus.com/en/standards/other/framework.

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