Financial records include the books and documents necessary to support the financial statement being prepared. These are normally referred to as balance sheets. The main purpose of these financial records is to provide information about the financial positions and condition of the company. They can also provide estimates of the future financial performance of the company. The general purpose of these financial reports is to enable the managers and investors to make financial decisions.
There are two kinds of financial statement, the first one includes the statement of income and the second one includes the statement of cash flows. The accountant preparing the statement of income provides a detailed account of all the financial activities conducted by the company while the accountant preparing the second kind provides an account of the cash flows occurring in the company.
In a company, general ledger contains information about the financial position of the company. General ledger contains the accounts receivable and accounts payable. General ledger helps the management to determine the cash flow, the working capital, the cost and net profits of the company.
In addition, general ledger is used to calculate the interest rate, the discount rate, the capitalization amount, and the outstanding notes and debentures of the company. General ledger provides a detailed description about all the financial transactions done by the company. General ledger also allows the manager to determine the annual revenue of the company.
The accountant preparing the statement of cash flows helps in understanding the company’s books. Cash flow refers to the difference between the total assets and the total liabilities of the company. In short, it refers to the amount left over after deducting the liabilities from the assets and paying the expenses.
The accounting of cash flow is done by estimating the amount of cash that is left after deducting all the expenses required to operate the company. The result of the cash flow estimation is called cash balance. This is an itemized statement that presents the difference between the current assets and the current liabilities. The difference of the current asset and current liability is referred to be called equity.
Current assets refers to those assets that the company has and current liabilities refer to those that the company is owed to other people. A company’s financial statement is called as current when the company has cash on hand and there is no borrowings or repayments of liabilities to the bank or other financial institutions.
Financial statement also includes the balance sheet, which is a list of assets and liabilities of the company. The balance sheet contains the sum total of all the financial transactions done by the company during the period of time it is in operation.
The balance sheet of the financial statement gives you the financial position of the company. The following steps are involved in making a financial statement of the company.
The process of making an accounting statement of the company starts when a business becomes profitable, it starts increasing its profit. The profit of a company is determined by the increase in the value of the asset compared to the expense of the asset and vice versa.
Then the profit of a company can be determined by analyzing the financial statement to see if the company has increased the revenue by increasing the value of its assets or by increasing the value of its liabilities. In case the assets of the company have increased, then it means that the value of the asset has increased and the profit of the company has increased.