Building organized financial information is important in companies, especially if you own a small business. Normally, to make a valuable investment decision, or if you are a business owner, you will want to know a lot of information about your business. However, if only through researching market comments or analysis, that knowledge will not satisfy you with an overview as the Financial Statement provides. Therefore, in order to manage your company well, you need to understand the four basic and most popular types of financial statements nowadays.
What are Financial Statements?
Financial statements (financial statements) are a form of documents showing quarterly and annual business results of a company. The indicators on the financial statements have been standardized according to the general standards and regulations so that the readers can comprehensively grasp the financial statements of each company.
A complete set of financial statements for readers to get an overview of the company's financial status will include 4 basic reports, which are as follows:
· Income statement.
· Balance sheet.
· Statement of cash flows.
· Statement of Owner’s Equity
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A business result report is a general report reflecting the general business situation and results in a period of operation of an enterprise. In other words, the business results report details of the profit/loss situation of the business. In detail, this report will show all money in and all money going out. Money paid out is called account, and money coming in is called revenue. When the costs are greater than the revenue, there is a net loss.
The income statement is broken down into categories, including:
A balance sheet is a general financial statement that generally reflects all existing assets, liabilities, and shareholders’ equity to form assets of the business at a given time.
The balance sheet reflects data on the total value of the existing assets and capital of the enterprise at the time of reporting the financial statements. Therefore, people consider the balance sheet as a snapshot of all financial resources of a business at a specific point in time, usually at the end of the year, quarter, or month. Therefore, if only based on data on the balance sheet, it will be difficult to assess the movement of assets and capital sources in both periods.
The following formula summarizes what a balance sheet shows:
ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY
Statement of cash flows.
A cash flow statement is a financial statement providing information on economic operations that affect the monetary situation of the enterprise. Cash flow statements are prepared on the basis of cash revenue and expenditure balance, reflecting the formation and use of the amount of money generated in the reporting period of the enterprise.
Cash flow statements play an important role in providing relevant information to evaluate the ability of a business to generate money, point out the relationship between net profit and net cash flow, analyze payment performance of the enterprise and predict the plan of revenue and expenditure for the next period.
The cash flows in the cash flow statement
- Cash flow from Operating activities: Including revenues and expenditures related to the production and sale of products, goods, and services of the enterprise.
- Cash flow from Investing activities: Including revenues and expenditures related to investment, purchase or liquidation of fixed assets, and long-term financial investments.
- Cash flow from Financing activities: Including revenues and expenditures related to capital mobilization from creditors and owners, repayment of capital to creditors, repurchase of shares, distribution of interests to investors, dividends to shareholders ...
Statement of Owner’s Equity
This is a report showing data on the existing situation and changes in equity due to the effects of processes: Investing capital of the owner, Net income (gains, losses) from operations. The owner withdraws capital.
If you, as a business owner, see that you cannot handle construction accounting on your own, consider hiring an accountancy service for contractors to help you with it.
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