Benefits of Preparing Financial Statements to an Organization
Accounting services are essential in any business paying little respect to its size, this is vital in light of the fact that the organization will have healthy finances when its sales and expenditure are controlled. Accounting is also important because it makes the company legally compliant with the set laws and regulations. Financial records are records of the financial related activities of the organization, the short term and long term financial position of the organization is always shown through this financial records.
All the financial statements prepared should portray a true and fair view of the actual financial position of an entity, these statements that are true can only be prepared by an individual who has undergone training in accounting and has acquired all the necessary skills and experience in preparing the financial statements. These financial statements ought to likewise be prepared at the right time and when they are required.
Profit and loss accounts, balance sheets, statement of owners’ equity and statement of cash flows are the types of financial statements prepared by organizations. There are four different types of financial statements prepared by an organization, they are; statement of financial position, income statement, statement of owners’ equity and statement of cash flows. The profit and loss account demonstrates the organization’s profitability amid a particular year; it sums all the income and deducts every one of the costs incurred amid the year. The profit and loss account has four sections these are; revenue, cost of sales, gross profit and operating expenses.
Lessons Learned About Businesses
The statement of financial position shows all the resources of an entity as well as owners’ equity of a specific period of time, it has key components these are; asset where it shows the current assets and the non-current assets of the entity, there is liability which shows the current and non-current liabilities of the company, and it also has owners’ equity which represents what the stockholders have invested.
The statement of owners’ equity shows the changes that have occurred in the company retained earnings over a certain period of time. The statement of cash flows shows cash and cash equivalents that are caused by changes in the balance sheet and profit and loss account.
The financial statements prepared should be reliable and simple to understand for the reader. People from different walks of life will use the financial statements prepared by the organization. The company will have the capacity to know its monetary position when the financial statements are prepared. Partners and also investors will have the capacity to know how the organization will be performing when they review the financial statements prepared. An investor will always know if he is going to invest in the company if he looks at the financial statements a company when he is conducting his due diligence.