4 Types of Financial Statements that are Important for Your Business
Financial statements play a very important role in a business. The financial data contained therein allows you to find out the overall financial condition of your business. From the information on the financial condition, you can formulate business strategies and make important decisions. There are different types of financial statements. There are at least four types of financial statements that you must know in business people and the following explanation.
Also called an income statement or profit and lost statement, the income statement describes the elements of the company’s income and expense to determine the net profit or loss generated. The main function of the income statement is to present business performance information, which is needed to predict the company’s internal economic conditions in the future. This information can also be used to predict the company’s capacity to generate cash flow from existing resources.
Based on the Financial Accounting Standards issued by the Indonesian Institute of Accountants, an ideal income statement must at least include aspects of income, operating profit and loss, borrowing costs, tax expenses, profits or losses from normal company activities, extraordinary items, minority interests, net profit or loss for the current period, as well as part of the profit or loss of affiliated companies and associations that are applied using the equity method. Extraordinary items refer to revenues, profits, costs, or losses arising from unusual or infrequent transactions or events. Meanwhile, minority rights are rights owned by small shareholders.
Statement of changes in capital
As the name implies, the capital change report describes information on the amount of capital your business has for a certain number of years. This report shows the magnitude of changes in capital that have occurred, complete with the causes of the changes. To make a report on changes in capital, you need data about the amount of capital at the beginning of the year, the amount of loss or net income during the year, and the withdrawal of personal funds by the owner for the year concerned. That is why you must prepare an income statement first before making a capital change report.
Balance Sheet Report
If you have never heard of a balance sheet, you might call it a balance sheet. Both are the same, namely a report that shows the condition, information, or financial position of a business on a certain date. Through the balance sheet, you can see the amount of assets in the form of assets or assets, liabilities in the form of debt, and equity which is the company’s capital.
In general, the balance sheet consists of three main elements, namely assets, liabilities, and equity. If all three are related to the accounting equation, it will form as follows: assets = liabilities + equity
Cash flow statement
Statements of cash flows or cash flows are the company’s financial statements that are used to show the company’s cash inflows and outflows during an accounting period. The information obtained from the cash flow statement can be used as an indicator of the amount of cash flow in the future, as well as useful for assessing the accuracy of the estimated cash flows that have been made previously. The cash flow statement is also the instrument of accountability for cash inflows and outflows during the reporting period.