The business world is currently heading towards the globalization process, companies must be agile and effective in the process of decision making in it the financial statements They play a very important role by issuing essential data used in the administration for the development of the company.
Business executives and managers need financial information updated to make the corresponding decisions about future operations.
Advertisements
Accounting prepares general economic information about the entity, this information is presented in the various financial statements ranging from and balance sheet, income statement, statement of changes in equity, cash flow statement, up to economic notes and explanatory material.
In this article you will find:
The 2 fundamental characteristics of financial information
From the simplest report to the important financial statements of the company, they must be characterized primarily by:
Advertisements
- Utility
It is very important that the information contained in the statements of the company is adapted to the needs and purpose of the users, including: shareholders, investors, creditors, workers, suppliers, government and society in general.
- reliability
They must accurately reflect financial data of the performance and what happens in general with the finances of the company.
Advertisements
What are financial statements?
In a simple way, the financial statements or accounting statements They are a formal record of the financial activities of the company, person or entity.
Advertisements
In detail, they are a report that summarizes and shows the use that a company has made of economic funds contributed by shareholders and creditors for a specified period and according to this what would be their financial situation current.
It is a basic principle for companies to show financial statements that adhere to the general accounting principles accepted internationally for maintain continuity and uniformity of criteria and of the information presented, since these statements are also frequently audited by government agencies, firms, accountants, among others, to ensure the accuracy and for purposes of reviewing the payment of taxes, financing or investment.
Advertisements
In general, the three basic financial statements are:
- The balance sheet, which shows the assets, liabilities and equity of the company.
- The Statement of income, which shows net income and how it is earned in a given period.
- The cash flow statement, which outlines the inflows and outflows of cash produced during the period in question.
Usefulness of financial information
The information displayed in the financial statements is useful for:
- The administration: Facilitates and supports decision-making, thanks to the fact that it makes known the growth, performance and development of the company during a certain period.
- The owners: Provide accurate information that allows you to be aware of the cost effectiveness their contributions and the financial progress of the business.
- Creditors: Helps them to know the company liquidity as a guarantee of fulfillment of its obligations towards them.
- The status: To check if the payment of contributions and taxes has been correctly settled.
How can be the financial statements?
Depending on the intended use, they can be:
Projected financial statement
Carried out at a future date or period, based on calculations and estimates of operations that have not yet been carried out. Usually accompanies a budget, is a proforma state.
Audited financial statement
They have undergone a review and verification carried out by independent public accountants, who finally formulate an opinion on all the information and the financial situation of the company.
Consolidated financial statement
They are those published by legally independent companies, they expose the financial situation and the utility as a single legal entity.
Types of financial statements
Balance sheet
It is the accounting document that informs the financial situation of the company, clearly showing the value of its properties, obligations and capital, valued in accordance with the accounting principles.
It consists of two parts
- Active: Shows the assets of the company,
- passive: Details your financial origin.
The legislation requires the veracity of this document and is a true image of the equity status of the company.
In the balance sheet only the real accounts appear and their values must correspond punctually to the balances registered in the general ledger and auxiliary books.
The balance sheet is prepared once a year and dated on the end of the year, it must be signed by those responsible for the company administration such as the accountant, a statutory auditor or auditor and the manager who assume all responsibility of the information exposed, if it were a company, the balance must be exposed and approved in the general assembly of shareholders.
Income statement or profit and loss
It is a document where detailed and consecutive information is gathered on how the utility of the exercise was obtained accounting and shows the result of the operations of the company, that is, the profit or loss in a period determined.
It is made up of the nominal accounts and the accounts of income, expenses and costs. The reflected values must correspond to the values recorded in the general ledger and its auxiliaries.
Statement of cash flows
It incorporates cash movements, in conjunction with sales and expenses that are not always paid and collected instantly. It represents the cash flow of the company and is related to the flows calculated for the valuation of investments.
It is a sign of the financial solvency of the company and its ability to pay.
For the preparation of the same, the net profit is started and the dimensions are adjusted according to the sales receivable and unpaid expenses.
Statement of changes in Equity
It is the financial statement that shows in detail the contributions of the partners and the distribution of the earnings obtained in a period, in addition to the application of retained earnings in periods previous.
It also shows the difference between the stockholders' equity (equity) and social capital (shareholder contributions), determining the difference between total assets and total liabilities, including shareholder contributions in liabilities.
