Category: Economics

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Crucial in any Business Undertaking

Financial statements are crucial in any business undertaking. Records or registers showing how money has moved within business enterprise or persons are called financial statements. To put it simply, such are registers of financial activities regarding some entity. They are to be authentic, easy and presented in a manner that is clear to understand. In a nutshell, quality should be upheld in coming up with this statements.

Financial Statements

Financial statements are kept with a clear purpose of future reference. Due to various reasons, such records could be useful to different entities in the future. Quality financial statements project the position, the performance and changes in financial status of the enterprise, which are considered useful to a wide range of users, as they seek to make decisions (Ray, 2000). Financial statements aid in deliberating on making informed decisions, and quality in preparing them is indispensable. Statements have the following relevance to various groups of persons. Records are helpful to owners and management. They need financial statements information to make crucial business choices or changes, which affect business operations. Through financial analysis, management or owners are supplied with detailed information or data contained therein. Financial statements too are used as part of management reporting to stakeholders periodically, as provided by various legal systems.

Information Contained in Financial Statements

Employees would also be interested in the information contained in financial statements. The information could guide them on the progress being made by the enterprise. Therefore, they would be able to negotiate effectively with management on salaries and remuneration. They could also require information for general knowledge, since they need to be informed on affairs regarding their employer. From the information in financial statements, employees are able to rate their performance and gauge if they have delivered on their goals or are still some miles away from attaining goals.

On financial statements, they have been defined as registers of financial activities within some enterprise or involving some persons. There are mainly four of them. The statement of financial positions, also known as the balance sheet, is one of them (Elliot, 2004). This statement shows assets owned by an enterprise, liabilities accruing to the enterprise and the level of the owners’ equity. It provides information about an enterprise’s resources and claims to resources.

The other document is the statement of changes in equity that depicts changes to an enterprise regarding equity (Elliot, 2004). This is done during the whole period of the reporting. It serves to reconcile the owners’ equity section of successive balance sheets, showing how generated income has since changed. Another one is the statement of comprehensive income, which is also referred to as the profit and loss account. This reports on an enterprise’s expenses and profits. This is done over some period in time, say, annually. It provides information on profitability of a business showing sources of revenue and expenses. It, thereby, shows sources and uses of a firm’s financial resources and trends in alteration of the capital structure.

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