What is Financial Reporting?
Financial Reporting is also known as communicating the Financial. Financial Reporting has the Financial Reports, which are the records by which a company knows about its Financial Position and status. With the help of the Financial Reports, the status and activities of the company can be detected. Knowing about the financial status of the company is a must because, with the help of knowing about the status of the company, the person will get to know what policies and practices they have to bring in their company so that they can earn as much as possible profit. If you want to know more about the financial reporting, read on the forthcoming paragraphs.
The major components of financial Reporting:
Financial Reporting has various components to check out the entire status of their company’s finance. Here those components are discussed:
In the balance sheet, the total asset value of the organization is mentioned. Besides the assets, liquidity and solvency of the organization are also mentioned in the balance sheet. The main purpose of making the balance sheet is that it is made to check out the ability of the company to meet its financial goals.
Statement of profit & loss
It is a very important thing to be made by the organization to analyze what losses and profits they have faced. In the profit and loss account, the organization mentions all their income, expenses, and profit & loss of the organization for a particular time period. With the help of this document, the organization gets to know whether their company is going on the right path or not. In addition, with the help of the profit & loss account, the company gets to know about the operations going on.
Cash Flow statement
In the cash flow statement, the organization merges its balance sheet. They mention their income statement as well in the cash flow statement. The business activities need to be highlighted in the cash flow statement, in which operating is also mentioned. All the policies, which affect the organization, is stated in the cash flow statement.
Notes and Schedules
In the notes and schedules, you will find the additional other information written about the organization. The different parts are explained in the notes and schedules, such as additional policies, uncertainties, and risks.
What is the necessity of financial reports?
Stakeholders are an essential part of an organization. If any organization is running, the stakeholders require all the details about the organization to run it. The financial reports are necessary, which helps to send the financial status information to the:
- Owner of the company
- Potential Investors
- Financial Institution
These all deserve to be in touch with the financial reports of the organization. The owners, managers, and employees require the reports to make important decisions for the welfare of the company so that it will run in a better manner. The investors and potential investors require financial reports to know about the assets of the company. By the reports, they can make a better decision regarding the investment. Financial Institutions also require the reports so that whenever the company will ask for a loan, they can check out; it is right to offer the loan or not.
I hope you got enough information about Financial Reporting, and now whenever you will run your business. Make sure to make the financial reports properly and then take the right steps for the welfare of the business.