References 15IntroductionFinancial statement forms an important aspect for all organization and the importance multiplies for every organization as it helps to present the true value of the organization to the society. The report hereby presents the manner the different financial statements are prepared, the cash flow statement and the importance of taxes which businesses look to address through the financial statement. Books maintained by businessIt is imperative to keep the below mentioned reportSimple cash book Cheque book Bank statement Debtors’ unpaid invoices. Creditors’ unpaid invoices. Balance sheet Income StatementTerminologiesProfit is the difference between revenues and expenses.
It is calculated as Revenues – Expenses. Assets: is defined as the items which are owned by the business and helps to generate future income. Example plant & machineryLiabilities: is defined as the sum of money which is owed by the business to outsiders Examples short term loanBalance Sheet: is financial statement which represents the value of assets and liabilities on a particular date. Profit & Loss Statement: is a statement which describes all business transaction incurred in a financial year and helps to calculate the profit or loss that the business incurred in that particular financial year. Source document are first record transaction.
It is used to keep the record in a systematic way. It provides us information which is useful in the business. It includes cash book and journalBank reconciliation statement is a statement which is prepared to remove the discrepancies which occur between the bank statement and bank book prepared by the business. It helps to identify those errors and removeReasons for maintaining financial statementsThe reasons for keeping records are as follows-To ascertain profit or loss in the businessTo ensure changes in the planning processTo control the costs of goods and servicesTo identify the amount due from debtorsTo see which accounts is necessary to be paidTo ensure business successTo make insurance claimTo decide future strategy for businessTo meet tax requirementsIdentifying the equipments to be purchasedDifferent Components of a Financial StatementFinancial statement comprises of different statement which businesses look to prepare to ensure that all information is disclosed to the public the different statements prepared are as followsBalance SheetBalance Sheet: is financial statement which represents the value of assets and liabilities on a particular date.
The balance sheet is divided into assets and liabilities. The following components forms the assets sideCurrent AssetsCurrents assets are those “assets which can be converted into liquid cash within an operational cycle”. (Hafez, 2010) Operating cycle differs on the nature of business as some business has it less than a year and some more than a year. Normally assets which are converted into cash in a year is considered as current assets. This is an important aspect for every business because it determines the manner a business has liquidity.
Current assets thus are in the following formsCash formWill be realized as cash in short term like debtorsStocks or other units which will be converted into cash within an operating cycle or one year