Financial Statement Definition | Why it’s Essential For Owners

Financial Statement Definition | Why it’s Essential For Owners

Why financial statement will important in your business?-Explanations.

When a report reflects financial activities and position of a person, business or an others entity is called financial statement. The summary shows a firm fund structure what is the current position of the business. It consists of three basic statements; (1) Cash flow (2) Income statement (3) Balance sheet.

Monetary report information is performed in a structured manner for easy to understand which is accompanied by analysis for management decision and its users.

The important factors to undermine of financial report for the following aspects are discussed below;

  • The company’s financial statement analyst analyses the data for stock price which is relying on the data based on the financial report.
  • To generate cash and the sources of cash is determine the ability of the business.
  • Determining annual report based on financial data.
  • To investigate financial data for the annual report and pretend fraud and misleading.
  • Showing business capability whether a firm capable to pay back its debt.
  • To calculate the financial ratio based on the data that can refer to the condition of the business.

The financial accounting audit is audited by the audit firm according to data which is recorded in the accounting books and confirm authentication of data source, avoid manipulation number of data. They confirmed the recorded data is prepared by the company’s accountant obeying and operate as per General Accepted Accounting principle (GAAP).


Definition of financial statement analysis

Normally, the financial statement in accounting based on four accounts. The following accounts discuss below;

(1)    Income Statement

An income statement is also known as profit and loss accounts (P/L) which is consist of income and expenses. The statement will reflect of net income with expense and revenue and calculate earnings per share. It has prepared a range of time which is yearly, monthly, quarterly and half yearly also.


(2)    Balance Sheet

The balance sheet is consists of assets, liabilities and owner equity. It provides the financial position of a particular company at the end of the year or a particular time. The statement shows that what was the position of its assists against company’s debt and also its capital position after the end of the period. Long term and short term assets always equal to long-term short-term liabilities and stockholder’s equity which is added net income from the income statement. The balance sheet considered as a financial health of the company and it is also a mirror of the company’s position.


(3)    Cash flow statement

The cash flow statement overview flows of the cash in the particular period. This statement consists of three activities operating, investing and financing activities. Cash flow statements merge with the income statement and balance sheet. Accounting convention is the main issue to merge with the income statement and cash flow. Operating activities consists of revenue and expenses in the particular period. Financial activities related to assets and debts like as bond issue, share purchased, debenture issued and so on. Investing activities measure on long-term investment like as land purchase, machinery, furniture and so on. In short, the flow of the cash money is the transition in cash flow statement.

A financial statement is the scratch of the firm’s position and it shows the real scenario of the users of the financial statement such as stakeholder, management committee and Annual General Meeting (AGM) whether you invested or not in this company? The answer you can get from an audited financial report which is prepared by a repudiated audit firm and get your decision.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.