Understanding financial statements properly is very vital for managers. Understanding financial statements helps you ascertain the financial position and prospects of a company. Financial statement are written records that convey the business activities and the financial performance of a company.
The end result of a company putting all her books together is called a financial statement. A financial statement shows the financial summary of an organization in a given period. It could be monthly, quaterly, semi-annually and annually.
A financial statement is also called a financial report. It is the end product of the account process which is the process of every book keeping activity.
Annual Report and Financial Report.
An annual report is a comprehensive report detailing a company’s activities throughout the preceeding year.
The major distinction between annual report and financial report is that while financial report shows the financial summary of a company, Annual report comprises and captures financial and non-financial reports. Annual report is more detailed. What makes annual report more popular is the financial report aspect of it but there are many qualitative parts of annual report that carry important pieces of information. Some of them are sustainability report, chairman’s statement and many other personal information. The CEO statement would always capture strategic and sensitive qualitative information.
Annual report contains much more than mere financial statements and non financial activities. It has a broader scope and in addition quantitative financial information such as letters from the CEO of the company.
Nature of Financial report
Finnancial report is historical in nature.
The report shows transactions that are expressed in monetary terms
It records only financial transactions
It is based on certain accounting concept, convention and principles. This helps potential investors and also share holders to be well informed on the prospects of the company.
Objective of Financial Report
- Financial reports assists management in taking effective decision relating to the firm objective prepares them to strategize.
- It is very important to shareholders because it makes you understand what the company is truly involved in.
- To assist management in planning, monitoring and control.
- Financial report helps to disclose information about an entity economic resources.
- Financial report helps to facilitate statutory audit. There are key participants in the financial reporting supply chain. Here is a description of how the chain goes. MANAGEMENT——-DIRECTORS——EXTERNAL——STAKEHOLDERS The management are responsible for preparation of financial statements: This sounds like a little deviation from the notion that accountants should be the ones saddled with the responsibility of preparing a financial statement. However, the faculty elaborated on this thought. He said that most times, accountant could be part of the management team. But in circumstances where this is not the case, they do it on behalf of the management. The manager has to peruse and vet it thoroughly for errors. This is because once he signs on it, it is presumed that he prepared it and can be held for irregularities on it if any occurs. This topic Understanding of financial statement has been simplified and it has removed most of the ambiguities I had as most of the terms and composition are becoming clearer and more relatable.
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