We explain what financial statements are and what the functions of these reports are. Also, some of its main features.
What are financial statements?
The financial statements are reports and documents with economic information of an individual or entity. Also known by the name of financial statementsthese reports expose the economic situation in which a company finds itself, as well as its variations and evolutions that it suffers during a certain period of time.
The financial statements are usually useful for the entity's administrative group analysts and third parties who fulfill an investment role in it (shareholders, owners).
In different countries the concept of financial statements takes another name:
- In Argentina they are known as balance
- In Colombia some financial statements are called Financial Balance
- In Spain they receive a totally different name, Annual Accounts.
See also: Profitability
Statement of financial position or balance sheet
This is a financial report that reveals the economic situation of an entity at a specific time of his life. This element is made up of three concepts widely used in financial statements: assets, liabilities and equity:
- The asset It is made up of the economic assets of a company, documents with the date of work and all types of expenditures that provide a future benefit to said company; In an accounting balance sheet, the asset is included in the credit.
- The passive It is any debt or commitment that a company acquires for its own financing or with third parties; In an accounting balance the liability is found within the debit.
- The net worth The PN are the residual resources of the asset, after deducting the liability. Net worth is then calculated using the following equation:
Assets – Liabilities = Net Equity
Income statement or profit and loss statement
Here it is reflected How was the result of each exercise achieved? at a specific time in an orderly and detailed manner.
This document is of vital importance for each company and its implementation consists of obtain the expenses and income of specific and separate categories so that results can be obtained. The result varies if it was achieved before or after taxes.
State of evolution of Net Assets
This accounting statement is the one that provides vitally important information regarding the size or amount of Net Worth that a company has and its different variations or changes over time. These variations or changes are consequences of different actions:
- Transactions carried out with the owners, third parties or shareholders.
- He surplus achieved or also positive profits that increase the Net Worth of a company.
- He deficit or losses that cause an abrupt decrease in the Net Worth of a company
Cash flow statement
This accounting statement is present in all companies and its purpose is report the different variations, modifications and cash movements.
The usefulness of the information provided by this financial statement lies in show managers the company's ability to generate cash or equivalent. Decision making by users is totally related to the results offered by this accounting statement.
