The Types of Financial Statements Prepared
Accounting services are essential in any business paying little respect to its size, this is vital in light of the fact that the organization will have healthy finances when its sales and expenditure are controlled. Accounting is also important because it makes the company legally compliant with the set laws and regulations. Financial records are records of the financial related activities of the organization, the short term and long term financial position of the organization is always shown through this financial records.
All the financial statements prepared should portray a true and fair view of the actual financial position of an entity, these statements that are true can only be prepared by an individual who has undergone training in accounting and has acquired all the necessary skills and experience in preparing the financial statements. These financial statements should also be prepared on a timely manner.
There are normally four types of financial statements an organization prepares and all have unique purpose but they are somehow related, these are; income statement, statement of financial position, statement of cash flows and statement of owners’ equity. The income statement shows the difference between the incomes made during a specific period and the expenses incurred in that same period. The income statement has four components these are; sales, cost of sales, gross profit and operating expenses.
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All the resources of an entity as well as the owners’ equity can be shown in the statement of financial position, it has key portions these are; asset where it exhibits the current assets and the non-current assets of the organization, there is liability section which exhibits the current and non-current liabilities of the organization, and it moreover has owners’ equity which shows what has been invested.
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Changes occurring in the retained earnings of a company over a period of time can be shown in the statement of owner’s equity. The statement of cash flows shows cash and cash equivalents that are caused by changes in the balance sheet and profit and loss account.
The financial statements prepared should be reliable and simple to understand for the reader. The financial statements prepared by an organization are very important to different groups of people. The organizations will have the ability to know its financial position when the financial statements are prepared by the accountant. Partners and also investors will have the capacity to know how the organization will be performing when they review the financial statements prepared. Investors doing their due diligence on the organization will know how it is performing by checking their financial statements , this will empower him settle on a choice on whether to invest on that organization or not.