The collection of records that represents a company’s financial condition is known as a Financial Statement. In case the financial statements are issued only for internal use of a company, then there are no strict rules for how these should be presented. But if these are issued for the external users, these should be formulated on the basis of the major accounting frameworks.
Significance of Financial Statements
These statements are significant due the following reasons:
- They help in determining the cash generating ability of a company along with the sources of generation and usage of that cash.
- They also help in determining a company’s ability to pay off its debts.
- These statements help in keeping a track of the financial results and hence, help in future planing.
The basic contents of a Financial Statement are as follows
- Balance Sheet: This shows the assets and liabilities of a company on a specific date.
- Cash flow statement: This statement shows the alterations in the cash flows of a company during a specific period of time.
- Income statement: This shows the revenues, gains, expenses and losses over a period of time.
- Supplementary notes: This includes the explanations and additional details of various activities.
