Analyzing financial statements and its important in accounting

Meaning of financial statement

Analyzing financial statements – Financial statement is a group of statements as it consists of various statements like balance sheet, profit and loss account, trading account, manufacturing account, cash flow statement etc. It is prepared with the help of accounting data such as data from ledger, subsidiary books etc. and it is prepared by the management of the business. The management can be internal or external.

Contents

Meaning of financial statement Financial statements explanation The important objectives of financial statements: Analyzing financial statements Features of Financial Statements What is the mean of Profit and loss form?Profit and Loss statements?Cash flow statements?What are the Income statements?Balance sheet maker?

Financial statements explanation

The primary purpose of financial statements is to present the true and fair value of the situation of the firm with the help of various statements of the firm i.e. income statement, balance sheet, cash flow statement, fund flow statement i.e. to provide the users and analysts with the information required for making decisions, which will be prepared in future. Financial statements of a company are the result of the past actions and decisions of the management. They are the end products of the accounting process. They give a picture of the solvency and profitability of a company. Financial statements are the means of conveying a brief picture of the profitability and financial position of the business to the management, owners and interested outsiders. Preparation of final accounts is not the first step in the accounting process but they are the end products of the accounting process which give the brief accounting information of the accounting period after the accounting period is over. To know the profit or loss earned by a firm, trading and profit and loss account is prepared. Balance sheet will show the financial position of the firm on a particular date.

The important objectives of financial statements: Analyzing financial statements

They take decisions regarding changes in the manner of acquisition, use, conservation, and distribution of scarce resources.
Facilitate decision making regarding replacement of fixed assets and expansion of the firm.
Provide necessary data to the government for taking appropriate decisions relating to duties, taxes, and price control, etc. and for certain legal and control purposes.
Instrument remedial measures for deviations between actual and budgeted performances.
They provide necessary information about financial activities to interested parties.
They provide necessary information about the efficiency or otherwise of the management about the proper use of scarce resources.
Providing information required for forecasting (financial forecasting).
Providing financial information to internal and external users.

Providing information useful in the decision-making process.
They help in evaluating the earning capacity of the firm by providing statement of financial position, statement of income and statement of financial activities to various interested persons from time to time.

Features of Financial Statements

Data manipulation is the biggest problem in the market as some businesses manipulate accounting data to get resources from outside and to avoid taxes. The main purpose of data manipulation is to prepare incorrect financial statements as financial statements reflect the business’s position and all outsiders take decisions according to the business’s financial statements.
Financial statements reflect the state of the business as it contains all the data of the business transactions. Financial statements reflect the true state of the business only if all the data of the business transactions are correct. If incorrect data is used then the financial statements will misrepresent the state of the business.
It includes various statements like Trading Account, Profit and Loss Account, Balance Sheet, Cash Flow Statements, etc. All the details of financial statements play a very important role in understanding the condition of the business.
Financial statement is based on data because it is prepared financial statements are a summary of data because they include only accounting heads. The necessary tasks like identification of transactions, measurement, records, sales etc. are completed beforehand so that financial statements can be prepared easily. When there are transactions planned, financial statements are prepared, because without transactions financial statements cannot be prepared. based on data from ledger, assistant consultant etc. If the data is wrong then financial statement will also be wrong, similarly if the data is correct then financial statement will also be wrong because the result of financial statement will be according to the data.

Also Read –

What is the mean of Profit and loss form?

This “Profit and Loss Form” it is a scorecard, just like the scoreboards in sports. It helps indicate whether your “team” (your business) is winning (making a profit) or losing (incurring a loss) by comparing it to your costs. And the best part is that every business has one.

Profit and Loss statements?

The price at which we buy an item is called the cost price and the price at which a product is sold is called the selling price. There is also a marked price which means the price that is printed on a product. So, in this article, we are going to discuss the profit and loss formulas, concepts, tricks, questions, and examples. Profit Loss: Formulas
Profit = Selling Price – Cost Price
Loss = Cost Price – Selling Price
Cost Price = Selling Price (No Profit No Loss)
Profit Percentage = (Profit × 100)/(C.P.)
Loss Percentage = (Loss × 100)/(C.P.)

Cash flow statements?

The cash flow statement is a financial statement that tracks all cash incoming and outgoing funds within a specified period. This statement helps business owners and investors understand the liquidity, solvency, and balance of their organization. The purpose of the cash flow statement is to understand which sources of cash are coming into the organization and which are going out, and to predict potential financial issues in the future.

What are the Income statements?

An income statement is a financial statement that reports the revenues and expenses of a company over a specific accounting period.
It shows profit and loss (P&L) statement, where profit or loss is determined by subtracting all expenses from the revenues of a company.

Balance sheet maker?

The balance sheet creator ensures that this document is created accurately based on the company’s accounting principles and financial data. They must balance the equation: Assets = Liabilities + Equity. By maintaining this balance, a clear picture of the company’s financial health is presented to stakeholders, investors, and regulators. This process can be streamlined significantly by using a software tool, making it easier to input financial data, prepare the balance sheet, and ensure accuracy and compliance with accounting standards.