Financial statements (also known as financial reports) are documents which give an overview of finances over a specific period of time. Businesses, companies, organizations, individuals or other business entities use financial statements to record their financial operations and activities and keep track of their overall financial analysis.
Financial statements include income statements, balance sheets, and cash flow statements—all of which report financial information and data concerning a particular business entity. Data collected from such documents are basically analyzed and interpreted to be used as a reference in future financial plans.
Advantages of Financial Statements
If you’re a person who manages a business of your own, you need a tool to easily monitor your finances. This is where financial statements come in. There are several advantages to using financial statements in monitoring your company’s financial status. Here are some of them:
- Financial statements summarize the movement of funds in and out of a company.
- Financial statements provide information on possible issues or problems regarding the company’s finances.
- Financial statements can be used as a reference for strategies in the future financial plan.
- Financial statements help managers or business owners in decision-making.
- Financial statements allow a company to avail for business loans or credits.
- Financial statements are needed in the regular calculation of annual or sales tax.
How to Interpret a Financial Statement
Financial statements are interpreted to determine the overall financial condition of a company. In interpreting financial statements, one first needs to know how to read the three main financial statements (i.e. income statements, balance sheets, and cash flow statements). Past financial statements can also be obtained for comparison.
- Income statements. These are documents which report a company’s revenue over a specific time frame, along with the expenses associated with such revenues. Income statements basically show how much a company has earned and lost over a given period.
- Balance sheets. Such documents give an overview of a company’s assets, liabilities, and equity over time.
- Cash flow statements. These documents typically report a company’s cash flow (both inflow and outflow). Cash flow statements also show the increase and decrease of finances at a given period.
How to Write a Financial Statement
When creating a financial statement, one needs to first be familiar with the basic financial processes of a company. Of course, different financial statements can be written in different ways. Here, we’ll discuss the basic steps in writing financial statements:
- Identify the purpose of your financial statement. Information and details found in your financial statement usually depend on the purpose of writing it.
- Specify the time period. Financial statements cover a certain period of time. Know the time period you need to cover.
- Gather data. Research and do what you must in order to gather the necessary information you need for your statement examples in pdf regarding financial.
- Write and organize all the information. Write all the data you gathered in detail and make sure to keep it organized.
- Be specific. Being specific means you need to avoid writing unrelated information on your financial report.
- Review. Ensure that the information you provide is accurate. Find ways to improve your financial statement and polish your work.