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Financial Reports and Their Information

by gbaf mag

Financial statements are detailed records which essentially convey the nature of the company’s business activities and its financial performance. In order to have a complete picture of the state of affairs, a company needs to prepare and file a complete set of financial statements. The statement of financial position consists of balance sheets, income statement, and statement of cash flow. The income statement tells the extent of profit or loss from the sales of products or services by the company and its other related activities. The statement of cash flow provides information on the operations and flow of funds.

The balance sheet reports the difference between assets and liabilities, including the current value of accounts receivable and accounts payable. The statement of financial condition is a summary of the company’s operations for a given period of time, including the balance sheet, income statement, and statement of cash flows. All the financial statements together provide comprehensive information about the company and its businesses. It includes financial data such as net worth, assets, liabilities and equity. These data allow managers to assess the health and growth of their business enterprises.

Companies usually submit their financial statements to various accounting agencies for evaluation and review. They use several methods, such as management’s report, employee report, third-party report, financial statement analysis, and reconciliation. A manager’s report is prepared based on the recommendations made by the accounting officers. The first step in the process involves receiving written opinions from all the accounting professionals involved in the preparation of the financial statements. The next step is to compare these opinions to the information provided in the financial statements to identify the discrepancies.

Most companies use the third-party report method of preparing financial statements. This method involves hiring independent financial advisors to verify and reconcile the financial records. This is the simplest and least expensive way of preparing financial reports. When a business completes an audit, it can also save a lot of money since it will not require additional expenses. The most common errors that are found in financial statements are mistakes made in recording income and other business activities, incorrect conversion of accounts receivable into cash, incorrect recording of tax payments, and non-disclosure of material information. Accounting fraud can result from false statements, deliberately misleading statements or errors that result from incomplete reporting, including the preparation of internal or external financial statements.

Financial analysts will check whether there is a discrepancy between the reported financial statements and the basic financial statements. They check for any improper entry, miscommunication or any inconsistency in the way money is handled. They then identify the error if the basic financial statements do not match the recorded financial statements. The most common errors found are errors in recording debits and credits, recording of internal and external financial transactions, recording of purchase and sale of inventory and misclassification of assets. In addition, they also check for any use of ineffective control measures.

A company’s balance sheet is the statement of its financial position as of a specific date. It also includes a statement of cash flows and balance sheets can be called as statement of equity (which includes the balance sheet and statement of cash flows), liability, equity, net worth and reinvestment assets. The term balance sheet is derived from the words ‘balance’ and ‘house’. ‘Equity’ refers to the difference between total equity and net worth, which include current and long-term debts. ‘Net worth’ refers to the ability of a company to obtain credit or money borrow without having to sell assets.

The fundamental accounting principles governing financial statements and reporting procedures apply to all reports included in the inventory, plant, equipment and inventory data. Reporting transactions are recorded in the corporate ledger, day-books, control records, journals, inter-account balances and sales and purchases. These procedures include the recognition of the balances as assets or liabilities. For instance, when a company sells products to retail outlets, it records the sale as an asset. Similarly, when it repays a customer, it records the payment as a liability.

The accuracy of financial statements depends on the data that are collected. Market prices at the time of reporting are generally accepted accounting principles. However, errors may be made in recording the costs of goods sold and payments made to customers. Similarly, errors may be made in recording the income effecting operations. Corrections for these errors are made in the annual report issued after one year after the end of the reporting period.

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