Financial reports or financial statements are documents that record the financial activities of an individual or a business. It is also referred to as an “account” which contains all pertinent financial data presented in a well-prepared method in a format that is simple to comprehend.
There are four fundamental financial statements:
- The Balance Sheet, which has information on the company’s present condition, including its owner equity and its assets and liabilities.
- The Income Statement or Profit and Loss Statement which provides information on business operations, including the company’s income, profits and expenses.
- The Statement of Earnings, which reports on changes in the retained earnings of the company.
- The Statement of Cash Flows, which include the company’s activities, specifically on financing, investing, and operating.
To prepare a thorough and effective financial report, the following must be taken into consideration:
- Collect all financial records that contain data about recent liabilities unpaid for and receivables that have not come in during the cut-off date of your report. Other resources must be included like property assets and other holdings.
- Divide the report into 2 sections, one for assets and one for liabilities. These sections can also be sub-divided for more details and information pertinent to each part.
- After accomplishing this and inputting all the important information for each section, start making a comparison between income and expenses. By doing this, you will have a better view of what your current net income is by deducting your expenses from the existing revenue.
- Relate the number of the remaining income to the additional assets of the company. If the end result is a negative figure, it will be deducted from the value of the remaining assets, whereas if it shows a positive result, the amount will be added to the value of these assets. The present, general worth of the company is reflected on these results.
- End each particular section with pointers that may require particular consideration. This gives you a chance to find the means to turn negative results to positive ones. Give special attention to details that are not relevant to the company’s aim to equip managers and other members of the company with a means of coming up with views as to how to improve on the company’s situation.
Financial reports are not only used for business enterprises but for other purposes as well. Though they may vary in preparation methods, they can all benefit through this organized system of recording financial information. In the case of personal financial statements, an individual is required to present this report when applying for a personal loan or financial assistance. The report consists of a single form containing an individual’s assets and liabilities, which in turn is deliberated on by the organization from which the loan is being applied for. Government financial statements are also vital information required from a particular agency, as well as other non-profit organizations such as charitable organizations and voluntary associations. It is important for a financial report to be easily understood, relevant, consistent, and comparable. If your report contains all these elements, then you are sure to have a valuable tool in accurately assessing your financial status, both personal and business-wise.