The financial statements are reports that are prepared at the end of an accounting period to provide information on the economic and financial situation of the company. This information allows to examine the results obtained and evaluate the economic potential of the business.
The accounting cycle is currently performed in a simple and secure way with the help of computers which, through accounting systems, processes information automatically, that is, the accountant only has to define the relevant items and enter the values that correspond to the accounts, and the accounting systems will be in charge of increasing, issuing check balances and financial statements.
This fabulous help, which simplifies tasks and significantly reduces the processing time, should be taken advantage of by the accountant who, in compensation, will pay full attention to the accounting adjustments, in other words, to debug and analyze the account balances. The accountant can present reasonably the economic and financial situation and the data can be verifiable and comparable from any point of view and test.
When you have absolute certainty that the information entered is correct, then proceed to prepare the financial reports better known as financial statements. Both the management of the company and the general public are interested in knowing the financial strengths and weaknesses of a company as a whole, or about a particular section of the business. For this, you must analyze and study the financial statements using methods of analysis that measure, compare and weigh the facts. The main financial statements are intended to report on the financial position of the company at a given date, on the results of its operations and the cash flow.
What is the purpose of financial statement?
The financial statements serve the following purposes;
Make investment and credit decisions.
Make judgments about the financial statements of the administration in terms of profitability, solvency, generation of funds and business development capacity.
Evaluate management, solvency and liquidity of the company and capacity to generate funds.
Know the origin and characteristics of resources to estimate financial capacity for growth.
Classes of Financial Statement
The financial statements are classified into two groups;
1 – Measuring Economic Situation
Statement of Income or better known as Profit and Loss
Retained Earnings Statement
2 – Measuring Financial Situation
Balance sheet or the statement of financial status
Statement of the Cash flow
Statement of the alterations in the equity