Financial statements Essay

Document Type:Essay

Subject Area:Finance

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They are meant to present the financial information of an entity clearly and in a more concise manner for use by the entity as well as by other external parties. The main users of these financial statements include investors, management, creditors, shareholders and government regulatory agencies. “Financial statements may be prepared up for private investors, non-profit making organizations, and industries that offer service to individuals” (Minnis & Sutherland, 2017). The nature of financial statements depends on the kind of data which is available for such businesses. There are many types of financial statements but the most basic ones are four. “They include the land owned by the enterprise, furniture and fittings, machinery, offices equipment and construction in progress among others. Examples of current assets are cash at hand and at the bank, investments that cannot be liquidated, prepaid expenses, account receivables and inventory of entity” (Sunder et al, 2018).

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According to Di Tella (2018), Liabilities refers to “Something that a business owes to other people, companies or the government. It is also defined as legal financial debts or obligations of a company that arises during the course of operation”. “Since they are financial obligations, they are usually settled over time as the business continues to operate and this is through the transfer of economic resources or benefits like money, services or goods” (Baker, 2018). Haskins et al (2017) say that, “It gives a summary of how a business obtains revenue and how it incurs expenses from both operating activities and the non-operating ones”. By drawing an income statement, a business is in a position to know whether it is making a profit or loss during a specific accounting period.

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“Unlike the balance sheet that only provides information regarding a certain month only, this basic financial statement statement shows the performance of a business on a quarterly and annual basis”, as well explained by Minnis & Sutherland, (2017). The income statement has two important portions which are the operating and the non-operating portions. The operating section of the income statement discloses information relating to revenues and expenses that originate from business activities that are regular. “By showing the profit or loss made by a company or business entity, an income statement enables managers to know the right step to take in improving the operation ability of their businesses” (Reid & Myddelton, 2017). Statement of cash flow It shows the income flow in and out of an organization.

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“The statement elaborates on how a business entity receives cash from its day to day operations” (Célérier et al, 2017). Cash into the business may originate from the rental property, commissions, and sale of goods, among others. “Information regarding the cash flows of a business entity is thus recorded automatically in the statement of cash flow, in what is referred to as cash accounting” (Baker, 2018). At the beginning as well as the end of a certain accounting period, this financial statement reconciles retained earned of an organization by the use of information recorded in the income statements. According to Baker (2018), “Statement of changes in equity must be prepared in line with the principles and regulations of accounting”. It gives customers the confidence to face the market and obtain the right goods and services.

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