Thursday, May 19, 2022

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    All about Financial Statements

    A company’s performance is depicted in the annual reports published by the organization.

    Financial records provide us clarity on how well the enterprise is being managed or working.  The Financial statements of an organization mainly consist of a Trading account, Income statement, Balance sheet, and Cash Flow statement, which is prepared at the end of one financial year starting from 1st April-31st March of the given financial year.

    All these carry their importance as the trading accounts show profit earned or loss incurred by the firm in a financial year from the trading activities.

    The Income statement and the net profit or net loss account show the net profit earned or net loss incurred during a financial year.

    The Balance Sheet shows the long-term and short-term assets and liabilities of a firm, it also shows the shareholder’s capital which means how much of share capital has been raised by the organization.

    The cash flow Statement emphasizes the ash generation to lend off the debts and other expenses.

    Financial statements are of great importance because they are an integral part of the management, the shareholders, the competitors, the society. Since these are prepared on an accrual basis of accounting, there can be chances that the profit depicted by the statement can be biased. Financial statements have few limitations such as the qualitative aspects.

    The qualitative aspect and the manpower employed in the organization are completely ignored while preparing the financial statements. To draw the analysis or to check the growth of the company, sometimes a comparison is made between the financial statement of two years. Overall the financial statements are of great importance.

    There are various diversifications in various types of revenues, expenses, and assets which makes it beneficial for investors like me to assess our valuation of money and invest.

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