Types of Financial statements to manage financial operations in companies

 Financial statements are a vital part of financial management and decision-making in companies and organizations. These statements provide detailed financial information about the company's financial performance over a specific period, helping to understand how funds, resources, and the economic performance of the company are being represented.

By using the three financial statements (income statement, balance sheet, and cash flow statement), companies can effectively evaluate their financial and economic performance, understand strengths and weaknesses in financial operations, and make important decisions such as resource allocation, implementing new strategies, and improving efficiency and profitability.

Additionally, different types of financial statements help provide a comprehensive picture of the company's performance to investors and other stakeholders, enhancing transparency in financial operations and the confidence of interested parties.

What are financial statements?

Financial statements are a set of official documents that reflect the financial position and performance of a company over a specific period of time. These statements contain fundamental information about assets, liabilities, revenues, expenses, and other key financial elements. The basic financial statements consist of an income statement, balance sheet, and cash flow statement.

The preparation of financial statements aims to provide users with accurate information about the financial position of the company. These reports help in evaluating financial performance, making financial decisions, and complying with applicable financial laws to ensure accuracy for tax, financing, and investment purposes.

Financial statements are typically prepared for external users such as shareholders, investors, and regulatory bodies, as internal users like management and certain employees have additional sources of information besides what is present in the financial statements.

Main types of financial statements

Financial statements in the world of accounting are prepared by the financial accountant according to the accounting principles adopted in the company or organization. The purpose of preparing these statements is to provide accurate and detailed financial information that enables various parties, such as shareholders, investors, and other external parties, to benefit from it later on. The types of financial statements are as follows:

• First: Income Statement

  It is a statement that shows revenues and expenses, which help determine the net profit or loss resulting from the economic activity of the entity during a certain period of time.

• Second: Balance Sheet

  It is a statement that includes the elements of assets, liabilities, and equity that help determine the financial position of the economic entity on a specific date. The balance sheet consists of three main sections:

  1. Assets:

     Assets are shown in detail, including fixed assets (buildings and equipment), current assets (cash and investments), and other assets.

  2. Liabilities and Equity:

     This part reflects the sources of financing for assets and includes financial obligations and equity (capital) used to finance operations.

  3. Net Equity:

     It represents the difference between the value of assets and liabilities, reflecting the net equity for shareholders or company owners.p>

• Third: Cash Flow Statement

  It is a statement that includes cash revenue and cash payments resulting from various activities of the economic entity, which helps in determining the net cash flows of the economic unit during a certain period of time. The cash flow statement includes the following three main activities:

  1. Operating Activities:

     Reflects cash flows originating from the company's day-to-day operating activities, such as revenues and payments related to sales and other costs. This section shows the net cash flow from operating activities.

  2. Financing Activities:

     Reflects cash flows Reflects cash flows originating from the company's day-to-day operating activities, such as revenues and payments related to sales and other costs. This section shows the net cash flow from operating activities.

     related to the company's financing, such as loan repayments, dividend payments, and buying or selling stocks. This part indicates the company's ability to finance its activities.

  3. Investing Activities:

     Shows cash flows related to investing in fixed assets and other investments, highlighting how the company uses cash to expand and develop its activities.

What are the differences between the main financial statements?

Financial statements are a key tool in accounting used to show the financial position of a company. The differences highlight the different purposes of each statement and the financial information they contain, impacting the understanding of the company's financial performance from different perspectives:

1. Income Statement:

   • Purpose:

     Provides information on revenues, expenses, profits, and losses during a specific period.

   • Elements:

     Includes revenues (sales, interest, commissions), expenses (production costs, marketing and sales costs, administrative costs), and net profits and losses.

   • Outcome:

     The income statement reflects the financial performance of the company and is used for tax calculation.

2. Balance Sheet:

   • Purpose:

     Provides information on assets and liabilities in a concise manner at specific points in time.

   • Elements:

     Includes assets (cash, investments, properties, equipment) and liabilities (bank loans, bond issuances, accumulated depreciation of assets) concisely.

   • Outcome:

     The balance sheet shows the structure of capital and debts and provides a comprehensive view of the financial position of the company.

3.  

   • Purpose:

     Provides information on internal and external cash flows and changes in the cash balance.

   • Elements:

     Includes cash flows from operating activities (revenues and expenses), investing activities (investments in fixed assets), and financing activities (repayment and borrowing).

   • Outcome:

     The cash flow statement shows how cash is used within the company and helps investors evaluate the company's ability to generate cash and repay debts.

Frequently Asked Questions:

What is the role of accounting in preparing financial statements?

The role of accounting in preparing financial statements includes recording financial transactions, analyzing and categorizing financial data, ensuring compliance with accounting standards, and preparing financial statements such as the income statement and balance sheet.

What are the main objectives of preparing financial statement?

The main objective is to provide an accurate and comprehensive picture of the company's financial position, provide important information to shareholders and investors to make decisions,

as well as to comply with accepted accounting standards and provide accurate and transparent financial information to investors and external parties. Additionally, preparing financial statements aims to provide a framework for evaluating company performance, identifying strengths and weaknesses, and understanding financial trends.

When should these financial statements be prepared?

Financial statements are created regularly according to accounting requirements and financial reporting for companies. They are usually prepared at the end of each financial period on a monthly, quarterly, or annual basis to display the financial position of the company in that period. This largely depends on the company's goals or stakeholders.

How can financial statements be used to evaluate company performance?

Financial statements can be used to evaluate company performance by analyzing various financial elements such as profitability, cash flow, debt ratios, and return on investment. Additionally, financial statements can be used to compare company performance with competitors, estimate financial trends, identify strengths and weaknesses, and predict future performance. Financial statements provide a comprehensive view of the company's financial performance and assist in making financial and investment decisions.

What are the key elements to pay attention to when comparing financial statements for multiple consecutive years?

When comparing financial statements for multiple consecutive years, special attention should be given to elements such as revenues, costs, profits, and losses over the consecutive years. It is also important to note trends in assets, liabilities, and equity to ensure the sustainability of growth and financial stability of the company.

Are there legal requirements for companies to submit financial statements?

Yes, there are legal requirements for companies to submit financial statements, and these requirements vary from country to country. Companies are usually required to prepare and submit annual financial statements according to recognized accounting standards within specific timeframes. For example, companies subject to taxation must submit financial statements for tax purposes and their tax obligations.

What is the impact of financial statements on the brand image and reputation?

Financial statements can have a significant impact on a brand's image and reputation, as they reflect the company's performance and financial stability. Therefore, they can influence the confidence of investors, customers, and business partners. Positive financial results reflected in financial statements enhance the brand's reputation and attract more customers and investments. On the other hand, negative financial results or indications of financial instability in financial statements can negatively impact the brand's reputation and lead to a loss of trust from stakeholders.