According to Financial Accounting Standards or SAK, financial statements are part of a complete reporting process, including balance sheet, income statement, statement of changes in financial position (cash flow, or flow of funds, notes, and other reports), as well as explanatory material which is an integral part from him. This report is prepared by company management to present financial performance at a point in time, usually at the end of an accounting period.
In a company, financial statements are an important source of financial information and can be used to make decisions so that the business continues. In a business, the report is something that is crucial because it is one form of responsibility of the business owner or management for the performance of business management to the parties concerned. Financial statements will show the financial condition of a business whether in accordance with the targeted or not. This report will be used as a reference whether the business is feasible to continue or not. That is why aspects of the accuracy, reliability, and relevance of information are emphasized in its making.
The Purpose of Compiling Financial Statements
As explained earlier, financial statements are something that is very important in the company. There are various objectives why financial statements must exist and must be prepared by a company. These important goals include.
- Ensuring financial position, profitability and performance
- Determine cash inflows and outflows
- Knowing the results of transactions in the company
- Provide information related to financial resources and obligations that must be resolved
- Direct accounting policies
- Check the efficiency and effectiveness of company management
- Help make decisions rationally
- Components of Financial Statements
- There are at least 4 components of financial statements that are often used to conduct an analysis of the company’s financial condition. These components, among others.
a. Income Statement or Income Statement
The income statement or also known as the income statement is a report that shows the company’s financial performance in terms of net profit or loss for a certain period.
Think of preparing an income statement as a series of steps. You start from the top with the total number of sales made during the accounting period. Then you go down, step by step. At each step, you make deductions for certain costs or other operating costs related to earning revenue. At the bottom of the ladder, after deducting all costs, you find out how many companies actually gained or lost during the accounting period.
A balance sheet or also known as the statement of financial position is a report that shows the assets, liabilities, and equity of a company in detail. The balance sheet presents the financial position of an entity on a certain date.
c. Cash flow statement
Although one transaction can make a big difference in the overall picture of a company’s position, the balance sheet will show the correct position at a certain point in time.
The cash flow statement is a summary of the sources and uses of the company’s cash. In other words, this report will present the movement of a company’s cash and bank balance over a period.
d. Statement of changes in capital
The report on changes in capital or also known as retained earnings report will explain the movement of the owner’s equity during a period. And the movement comes from the following components:
Make Financial Reports Faster with Accounting Software
In the process of making reports often occur errors, such as recording and reconciliation, not storing receipts and notes, or errors in calculations. So that many entrepreneurs who have not made a report properly and regularly with the reasons do not understand, bother until there is no time to make it. Yet with the sophistication of technology now, the process can be done more quickly and practically. Assisted by online accounting software is a solution for entrepreneurs in monitoring their finances without worrying about errors in reports so they can focus more on developing their business. Journal is one of the accounting software that can be relied upon to solve various difficulties in bookkeeping and making reports.