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What Is a Financial Statement?

What Is a Financial Statement?
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Are you up to date on your business documents?

An organized business knows how to track progress and growth using various analytics. For finances, each company must have a financial statement. This document allows stakeholders to evaluate a company’s financial health.

In addition, a financial statement enables stakeholders to make informed economic decisions. Are you a small start-up business? Read everything you need to know about financial statements below.

Financial Statement

A financial statement presents a business’ position and the results of its operations for a specific period. It covers the resources, obligations, and capital.

Most businesses use software like Excel to track their financial progress. However, if you’re a small business, this can be a grueling and time-consuming process. Hire Excel expert services instead so you can focus on other aspects of your business.

Your auditor will assess the documents to ensure the entity produces accurate information. Financial professionals use the documents for financing and investing activities. The government can audit the financial statement for tax purposes as well.

Main Types of Financial Statement

An entity must present all types of financial statements for efficient financial analysis. Here are the main types of financial statements you need.

1. Statement of Financial Position

The financial position defines a company’s financial status for a specific period. It presents the assets, liabilities, and equity of an entity. It allows the business to check asset value, its ability to pay debts, and its borrowing level.

The accountant can present the financial position in two ways: classified and unclassified. The classified presentation uses the current and noncurrent distinction. You use the unclassified presentation if you base the data on liquidity.

2. Statement of Comprehensive Income

You can assess the financial performance of an entity using its income statement. It provides information on its revenue, expenses, and net income for a period. The income statement tells the ability of an organization to generate profit.

3. Statement of Cash Flows

The statement of cash flows reveals the sources and uses of cash in a reporting period. Finance professionals classified the document into three categories. It separates cash flow information from operating, investing, and financing activities.

Operating activities refer to transactions that affect income and expenses. Investing activities cover the acquisition and disposal of capital assets. The investment and drawing transactions of the business owner fall under financing activities.

The statement of cash flows informs its users of the amount the entity makes and spends.

4. Statement of Owner’s Equity

The statement of owner’s equity shows the changes in the capital balance of an entity over the period. It covers the income, contributions, withdrawals, and losses incurred. You can present the document to attract investors.

Importance of a Financial Statement

A financial statement allows stakeholders to set future expectations based on past successes. Investors use it to determine if an entity is worth investing in. It’s also legally required, so ensure you follow the regulations under the GAAP and IFRS.

Everything About the Financial Statements

Financial statements are one of the most essential factors you need as a business owner. With a financial statement, you can keep proper track of your finances and look for the right strategies and tools. Don’t forget the importance of a financial statement to ensure the success of your company!

Need help in managing your business’ finances? Check out our other blog posts to discover more valuable business guides.