This paper is meant to give an informative view on how financial accounting is used to help small and large businesses make positive and safe financial decisions. It is designed to help small business owners without a vast knowledge or understanding of accounting or of financial reports achieves maximum growth. We will examine the importance of financial reports as well as being able to account for a company’s assets and spending. Through proper accounting and reporting companies have a better way of assimilating what areas can be improved by comparing the reports of prior years and evaluating the differences in what was done then and now. It helps to provide a guide as to what actions the company may want to take to in order to improve or hold its place in its industry.
Financial reports are a necessary tool used by investors and potential investors to see how a company functions and stands financially. It is a deciding factor in what and how much will an investor invest in a company. It is also used to analyze and assess a companies potential areas of growth as well as its areas of loss. It is also a way for a company to track its earnings and losses of past years. It can be used to asses the effect of company trends and see how they may have affected the company whether positive or negatively. Looking at the managers annual report helps to determine some of the reoccurring factors that have affected the financial statements and give clues on what can be done to avoid potentially dangerous financial events in the future. The reports also come in handy when having to refer back to companies financial statements when being audited. Financial reports can be also is used to determine what the company’s expected future shares will be sold at.
When putting together a financial report there are four parts that are needed. These four parts are the key elements that are needed in order to accurately show the companies financial standings in the report. The parts are: balance sheets, income statements, cash flow statements, and the statements of shareholders’ equity. Each statement shows the companies financial flow, where, and how the money is being spent. The financial statements work as follows:
The balance sheet:
The balance sheet shows what the company’s assets are and what it owes for its assets also known as liabilities.
Financial statement users around the globe use financial statements to evaluate the performance of companies (Fundamentals of Financial Accounting, 2006). In order to locate a company’s reported assets, liabilities, expenses and revenues, statement users rely on four types of financial statements. The four financial statements include: Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows (Fundamentals of Financial Accounting, 2006, p. 6). Each of these reports provides different information to the financial statement user. The Balance Sheet reports at a point in time: a company’s assets (what it owns), liabilities (what it owes) and stockholder’s equity (what is left over for the owners) (Fundamentals of Financial Accounting, 2006, p.7). The Income Statement shows whether a business made a profit (net income) during a specific period of time (Fundamentals of Financial Accounting, 2006, p. 10). The Statement of Retained Earnings illustrates what portions of the company’s earnings was paid to stockholders and retained by the company for future operations (Fundamentals of Financial Accounting, 2006, p.12). Finally, the Statement of Cash Flows reports summarizes how a business’ “operating, investing, and financial activities caused its cash balance to change over a particular range of time” (Fundamentals of Financial Accounting, 2006, p.13).
Due to the use of the company’s annual report for users to make decisions, ensuring that the financial reports convince the objective of general purpose financial reporting and qualitative characteristics of useful financial information as outlined in the IASB September 2010 ‘Conceptual Framework for Financial Reporting’ (CF) have become extremely important. Such failure of disclosures can mislead information on the company’s financial statements.
We assume that analysis of the data from the annual report of the company can help us to gain a better understanding of the connection between company’s financial position and change in the stock price.
An important part of financial planning for corporations is the annual report. Publically held companies are required to submit an annual report to the SEC and private companies, even though not required, can use an annual report to gauge the performance of the company for the past year and use the report to plan for the future. The financial statements that make up an annual report are the income statement, the balance sheet, and the statement of cash flows. (Melicher, 2014) Once all of the financial information has been compiled and the three statements that make up the annual report have been completed a corporation can then start to analyze the data. There are several different categories of financial ratios
There are many companies that use financial accounting statements to maintain a financially sound organization. Bookkeepers are able to give a report of the company’s financial health through these statements. These statements are reports that contain information pertaining to the organization’s financial position and results of their activities. (Finkler, et, al., 2013). The purpose of Management's discussion and analysis (MD&A), is to provides an overview of previous operations to develop a framework to meet the goals for the next year (Finkler, et, al., 2013). These outcomes can highlight areas of positive and negative managerial styles and decision making. It offers a breakdown of the overall financial position and results of operations to assist users in assessing whether that financial position has improved or deteriorated as a result of the year’s activities. (Finkler, et, al., 2013).
Financial Statements and Notes on Financial Statements: This is the most important section for any user of the annual report. Greencore started this section with the company’s 2014 and 2015 Income Statements. These statements give us information regarding Greencore’s sales revenues, its cost of sales, operating costs, income before tax, data about the company’s taxation, its net profit for 2 years, and Earnings Per Share. The readers can get an idea about the company’s profitability for the last 2 years from these statements. Next we have the ‘Group Statement of Recognised Income and Expense.’ Then there are the 2014 and 2015 Balance Sheets of the company. The balance sheet works as the mirror of the company. It portrays the exact financial condition of the company at the end of the year. The side-by-side presentation of 2 years’ balance sheets gives the users an idea about where the company is improving and it is lagging behind. Greencore’s balance sheet gives us an idea about the company’s liquidity, its capital structure, and its financial strengths and weaknesses. After that, we have the Cash Flow Statement, which illustrates the company’s cash inflows and outflows through its operating, investing, and financing activities. This statement reveals how liquid the company is, and how capable it is to meet its short-term obligations. There are some other financial statements like the ‘Statement of Changes in Equity’ presented in this section that provides the users with additional information . Finally, we have the notes on financial statements part that shows us what kind of accounting practices (accrual or cash basis) the company has been following, what accounting and financial reporting policies and standards it has been following and implementing, and how the company is adhering to the recognised accounting and financial reporting
“A balance sheet is a financial statement that summarizes a company 's assets, liabilities and shareholders ' equity at a specific point in time. These three balance sheet segments give investors
It provides management with valuable information needed to engage in decision-making about the organization’s vision and overall strategies. Although the traditional reporting displays vital information about the financial health and activities of an organization to its potential users, it does not provide adequate record and measurement of non-financial metrics such as employee turnover and plant locations, which also contribute greatly to the overall value of the organization. The American Institute of Certified Public Accountants (2016) explains “In traditional financial reporting, the value is defined more in terms of “book value” and is historical in nature. Further, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and supplementary disclosures for traditional financial reporting are based on historical performance and variances in the statutory financial position according to the application of GAAP.” It is also important to differentiate financial report and financial statement. While the financial report consists of Management’s Discussion and Analysis (MD&A), financial statements, notes, Required Supplemental Information (RSI) and Other Accompanying Information (OAI), the financial statement is only a compilation of reports
In this essay, I will briefly describe some of the most important components of financial accounting: the accounting cycle, merchandising operations, internal cash and control, receivables, plant assets, natural resources and intangibles. I will summarize their concepts, explain their key applications, and describe their integration of implications in the Accounting Cycle.
Preparation of financial information is a critical role of the management of all public companies. For instance, access to accurate and timely information enhances the ability to manage the business of the company effectively. Moreover, it makes investors to put confidence in financial reports of the company if the company needs to increase its capital in the public securities market.
Balance sheet-: Balance sheet is a statement at the book value of all of the assets and liabilities of a business or other organization present a particular date such as the end of the financial year. It is known as a balance sheet because it reflection accounting identity the components of the balance sheets. The balance sheet must follow the following formula:
The various tools of financial statement are used for decision-making process. The financial statement becomes a tool for future planning and forecasting. The analysis of these statements involves their division according to similar groups and arranged in desired form. The interpretation involves the explanation of financial facts in a simplifiers manner.
The purpose of this document is to describe the nature, purpose and scope of accounting and it deliberately explains the details of each category in accounting. Accounting involves in preparing financial documents of an entity by analyzing, verifying, and reporting this records. It emphasizes its major characteristic role in field of banking and finance, with a mixture of supportive sub topics.
Balance sheets are very important for parties like suppliers, investors, competitors, customers, etc. to know the company’s position, company’s strength and company’s weaknesses. Balance sheets helps to ascertain the amount of capital employed in the business so that we can further calculate different types of ratios. Some important objectives of preparing balance sheets are:
Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders.