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Why all businesses need to prepare financial statements

#cashflowclarity #relevantreporting Feb 03, 2023

Financial statements are the basic building blocks used to analyse a company's performance and financial position. It provides you with an understanding of what a company does, how it does it and where its money comes from.  It gives a great perspective of where the business has travelled from, and can be an indicator of where it is going.

The financial statements generally consist of four reports namely:

The Profit and Loss report

It is the most commonly used financial statement, and also the most important. It is also known as the income statement. The Profit and Loss report shows how much money a company made (or lost) during a specified period of time, usually one year.

The Balance Sheet

It is the second most important financial statement. It provides a snapshot of the company's assets, liabilities and shareholder's equity at a given point in time.

The Cash Flow statement

It is one of the most useful documents for investors because it shows how much cash went into and out of a company during a specific period of time.

Statement of Changes in Equity

It is a statement that shows how the company's shareholder's equity changed over time. This is usually found in the footnotes of a company's financial statements.

All of these are important financial statements that can be used to analyse a company's financial health. They can also be used to evaluate the company's performance over time.

The Notes to the Accounts are the assumptions behind how we (as accountants) value certain items, and whether they belong as an asset, and expense, a liability, and whether money coming in to your business is included as revenue or not.  These pages of jargon are a boring but necessary piece of your financial reports.

Why do you need financial statements?  This blog explains more about how a Balance Sheet is used.

Do you need help with your financial statements?  Book a complementary call here to meet with our team and find out how easy it is to prepare.  

 

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