The backbones of business reporting are the financial statements. They are formal records of the financial activities of a business.
There are three basic financial statements:(1) Profit & loss account(2) Balance sheet(3) Cash flow statementThe profit & loss account:The profit and loss account (also referred to as the income statement) shows the results of the flow of activity and transactions and is designed to report the profit performance of a business for a specific period of time. The profit and loss account reports total revenue, total expenses and resulting net profit. The purpose of the income statement is to keep you informed of the income and expense status over a period of time. At the end of each year, this statement is closed and starts again with the beginning of the new fiscal year.
The Balance sheet:Balance sheet (also referred to as statement of financial position or condition) lists the assets owned by a business, the liabilities owed to others and the accumulated investment of its owners.
It is a report of what the business's resources obligations are at a stated time. The balance sheet provides information in determining the degree of financial risk.
Cash flow statement:Complementing the balance sheet and income statement, the cash flow statement (CFS), records the amounts of cash and cash equivalents entering and leaving a company. A positive cash flow is essential to a businesses ability to survive and prosper. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent.
There are different kinds of users of financial statements. The users of financial statements may be inside or outside the business. They are classified and detailed as follows:1. Internal UsersThe internal users are the individuals who have direct...