Definition of Financial Statements, Content, Benefits, and Examples

A company or a business will usually issue financial statements in a certain period. This financial report is useful for knowing the transactions carried out within the company.

Of course, financial statements do not only dwell on financial records. There are many things you should know about financial statements. Such as understanding, benefits, examples, functions, to the income statement.

Moreover, if you have a business or business, having financial statements is mandatory. In this article, you will find out all about financial statements. 

Definition of Financial Statements

Broadly speaking, financial statements are records of a company's transactions, both in-business transactions such as sales, or outside business transactions such as stock purchases, investments, and taxes.

This financial report is also very important to be prepared neatly so that investors or stakeholder can see that business finance what you live in is stable, well-planned, and growing.

Not only does it have an important role in getting investors, financial reports can also have other benefits in the business you are in.

Benefits of Financial Statements

These financial statements do not only apply to big businesses, but also financial statements also apply to small businesses and SMEs. The function of financial statements for businesses is to know how the company's finances are going. So, we can see in the future whether the company can continue to run or have the appropriate funds.

1. Knowing about MSME funding

A small business or any large business must know the funds owned by the business. Not only the funds you have, but knowing how much money comes in after the product or service sells on the market, how much is the rental price for a place or equipment, how much debt the company has to pay each month, and how many assets your business has.

Financial reports for MSMEs will also be useful for potential investors if your business is growing rapidly, because the financial statements will have details related to assets, leases, and equity. So, you can know how quickly consumers pay your bills or how much money has to be paid for debts. Things like this will be useful in the long run.

2. Giving owner overview of profitability 

In the financial statements, of course, there will be what is referred to as an income statement which is separate from the income, expenses, sales, cost of goods sold, operational and net income statements.

So, this easily provides an overview of the net income that your MSMEs generate. The report for MSMEs will also contain profit and loss which is very useful if the business you are running requires a loan.

3. Display cash activity

Just like cash flow reports, financial reports for MSMEs will also provide details regarding cash coming in and going out of the business you manage. It is very important to know the details of cash so that the business can also run smoothly, because business profits come from cash.

Types of Financial Statements

The type or content of the financial statements is divided into four, namely the profit and loss financial statements, financial statements cash flow, reports on changes in capital, and balance sheet reports. The following is a discussion of the contents of the financial statements:

1. Income Statement

The first type of financial report is the income statement, this financial statement will usually contain the income and expenses of a company. The income statement will usually be prepared at the end of the period, namely the end of the month or the end of the year.

The income statement will also show the profits, losses, and taxes of a company.

2. Report Cash flow

Cash flow is a statement of cash inflows and outflows of a company or individual used to meet needs. Definition cash flow It is also often interpreted by another name, namely cash flow. So, meaning cash flow It is also defined as the outflow and inflow of cash.

Cash flow or cash flow will record income and expenses over a certain period, usually reportcash flow made on a monthly basis. Just like his name, cash flow only record income that is cash or paid directly. 

Main purpose of the report cash flow is as a form of financial picture and also as a financial projection. With the report cash flow can determine whether these personal or personal finances will generate sufficient cash flow negative or positive.

3. Capital Change Report

The statement of changes in capital is a report to describe the increase and decrease of the company's wealth or net assets in a certain period using certain measurements.

This report will also usually provide information related to changes in working capital from investments and funds generated by a company in one period.

 4 Balance sheet

The last financial report is the balance sheet, the balance sheet will provide information about asset accounts and is also one of the reports that must be owned by the company. The balance sheet will usually be prepared once a year.

3 Things You Should Not Forget about Financial Statement Analysis

After making financial reports, of course the next step is analyze financial statements. This financial statement analysis is useful to see if your company's finances have increased or decreased.

1. Assess the quality of the company's financial statements

Analyzing financial statements means that you review the financial statements of a business or company that have been designed, when reviewing you must generalize them with the relevant trade accounting standards.

Do not forget to evaluate the trial balance, to assess whether the trial balance is complete. Then, when analyzing the income statement, you should look at whether earnings quality is a complete representation of the company's economic performance.

By evaluating all components of the financial statements as well as to understand the impact of the company's liquidity position from operating activity funds, investing and financing activities in a certain period.

2. Analyze profitability and financial risk

The next and no less important step is to conduct an evaluation related to liquidity, asset management, profitability, and financial risk.

You also need to analyze how profitable the business operations are on assets, and how the company can pay for those assets. The latter is how profitable the company is from the perspective of equity shareholders.

3. Prepare financial report projections

Things you can't escape fromfinancial statement analysis is to make report projections finances for the next period. This stage is very important to do so that you can make assumptions about the company going forward because it will have an impact on cash flow and funding. So, you can find out about finances that will later be used or obtained.

Sample Financial Report

To make financial reports can actually be adjusted to the company that you live with. You can make financial reports with examples of financial reports scattered on the internet or also use financial statements.

However, currently Microsoft Excel already has a financial report format that you can use instantly by replacing the transaction numbers that match your company. You can use this financial report format download for free.