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What are Financial Statements: Definition, Functions, and Types

In running a business, financial statements cannot be separated. Financial reports are needed by a business to manage finances in business.

Financial Statements

In running a business, financial statements are inseparable. Yes, financial reports are needed by a business to regulate how the income and expenses of business activities.

As is known, finance is the most important element in a business. How not the finances of a business can determine the good and bad development of a business. For this reason, building a business requires good financial management knowledge.

However, not everyone understands the importance of financial statements. For this reason, in this article, we will discuss the ins and outs of financial statements, such as their meaning, functions, and types.

Understanding Financial Statements.

Financial statements are reports that contain records of transactions that occur in a business. Financial statements are generally made within a certain period, the determination of which is determined by the policies of each company, either once a month or once a year.

Financial reports are made to determine the company's overall financial condition. So that stakeholders and users of accounting information can evaluate and make the right decisions if the company experiences financial problems at any time.

For this reason, financial statements must be prepared and accounted for properly. So do not be surprised if the holder of the company's finances should be people who can be trusted and are experts in their fields. Because he is the one who will present the results of the financial statements that have been made in great detail in front of the stakeholders.

Financial Report Function.

The function of making financial statements is to present information related to transactions in the company's operations. The financial statements present financial information that can be explained in detail.

By compiling financial reports, we can make it easier to find out financial information. Financial information is important not only for business actors but also for other stakeholders.

Types of Financial Statements

It should be noted that in preparing financial statements, there are various types of financial statements that must be known, including the following:

1. Profit and Loss

Statement The income statement is a financial report used by the company to determine the company's financial position, both profit, and loss. The income statement is a reference for companies in making decisions for the sustainability of the company itself.

Please note that two ways can be used to prepare an income statement: by a single step (in stages) or multistep (direct). In the calculations, both have advantages and disadvantages depending on the company's needs.

2. Cash Flow Statement The

A cash flow statement is a financial report that contains reports of the company's cash inflows and outflows. This report can be seen from the company's transactions. Cash flow statements are made in a certain period depending on each company.

The cash flow statement is an important indicator for the company for the coming period. With a cash flow report, business actors can determine the company's cash entry and exit.

3. Report of Changes in Capital

The company uses the report on changes in the capital when there is a change in the money in the company. This change in the capital can occur within a certain period. The statement of changes in capital contains the number of changes in the company's money. Thus the company can know the next plan.

The components needed to make a report on changes in the capital are capital owned by the company directly, personal funds by business people, and the amount of net profit and loss for a certain period. To make a report on changes in capital, the company must first make an income statement.

4. Balance Sheet

Report The balance sheet is a financial report that contains information, position, and financial condition of the company in a certain period. The company needs a balance sheet to plan future activities.

Several components are needed to prepare a balance report, such as assets, assets, liabilities, debts, etc. The important elements in preparing the balance sheet are assets, liabilities, and equity.

5. Reports for Financial

Statements This one report is made to present financial information so that the explanation of the financial statements that have been made can be more detailed and detailed so that they are easy to read. Compiling these financial statements will make it easier for readers to find important information in the financial statements that have been made.

Reports for financial statements are not only made for company officials but also for investors who want to invest in the company.'s financial statements as material for consideration.

The Importance of Financial Statements for Companies

Maybe some of you wonder why a company or business needs financial reports. What are the necessary funds for the company? Please note that with the financial statements, business people can easily see the required financial information and the company's financial condition as well as make future business decisions. With economic reports, every company transaction will be recorded and easily known at any time.


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