The Ultimate Guide to Businesses
The Types of Financial Statements Prepared
Accounting services are essential in any business paying little respect to its size, this is vital in light of the fact that the organization will have healthy finances when its sales and expenditure are controlled. Accounting is also important because it makes the company legally compliant with the set laws and regulations. Financial records are records of the financial related activities of the organization, the short term and long term financial position of the organization is always shown through this financial records.
Financial statements should be prepared by an individual with an education in accounting, they should have the necessary skills and knowledge in the preparation of the financial statements, and this will ensure that they will prepare accurate financial statements that will portray the true and Fairview of the company’s financial performance. These financial statements ought to likewise be prepared at the right time and when they are required.
There are normally four types of financial statements an organization prepares and all have unique purpose but they are somehow related, these are; income statement, statement of financial position, statement of cash flows and statement of owners’ equity. The income statement shows the difference between the incomes made during a specific period and the expenses incurred in that same period. The profit and loss account has four sections these are; revenue, cost of sales, gross profit and operating expenses.
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All the resources of an entity as well as the owners’ equity can be shown in the statement of financial position, it has key portions these are; asset where it exhibits the current assets and the non-current assets of the organization, there is liability section which exhibits the current and non-current liabilities of the organization, and it moreover has owners’ equity which shows what has been invested.
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Changes occurring in the retained earnings of a company over a period of time can be shown in the statement of owner’s equity. The statement of cash flows normally shows the cash and cash equivalents brought about by changes in the income statement and the statement in the financial position.
The reader of the financial statements should be able to read and understand them easily. The financial statements prepared by an organization are very important to different groups of people. The company will have the capacity to know its monetary position when the financial statements are prepared. Stakeholders as well as shareholders will be able to know how the company will be performing when they review the financial statements. Investors conducting due diligence on the company will know how it is operating by checking their financial statements, this will enable him make a decision on whether to invest on that company or not.