The financial information is a very important matter in a company success. Allow them to see if they have been successful in the past, in the present and help them to predict a future performance of you company.
The form, the use and the people involve with the financial and accounting information in a company is going to be developed in this report.
Knowing the status of your company in every single area will allow you to improve your performance and developed strategies with a solid background for a successful operation. In the financial department of every company different kind of data and report to provide the information needed is used. Without that information financial manager, investors and bankers would be flying blind (Block, Hirt 2005). Those are not all the groups of interest about the financial information; we also have the government (for taxes purposes), general public (for investment opportunities), the competition and the operational areas to determinate their performance.
In finance there is three basic kinds of financial statements, the income statement, the balance sheet, and the statements of cash flow.
The income statement is made for measuring the profitability of a firm over period of time. Inform how revenue is transformed into net income and show whether the company made or lost money during this time. Income statement should help investors and creditors determine the past performance, predict the future performance and assess the capability of generating future cash flows. That information and other non financial data (like the company goal or the marketing strategy) will help the financial manager for instance to determinate how much money should the company put in research and development.
However, income statements has several limitations; for instance a change in the value in the firm’s land will increase the value of the company, but as you don’t have this increase as an income it is not reflected in the income statement. You also can find that several transactions depend on accounting methods, judgments and estimates, so similar events may result in differing measurements of income at the end of a time period
The balance sheet is a summary of a person or organization's assets, liabilities and Ownership equity on a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition and indicates what the firms owns and how theses assets are financed in the form of liabilities or ownership interest (Williams, Jan R 2008). Intent to answer how much did the firm make or lose and what is a measure of its worth? (Block, Hirt 2005).
A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.
One of the limitations of the balance sheet is most of the values are stated on an original cost basis, and that could be a problem when...