A Comprehensive Guide to Understanding Financial Statements
A financial statement is a crucial piece of information for an organization. It gives an overview of the financial status of the company. It consists of a group of reports that contains financial related details of the organization. These include assets, liabilities, incomes, expenses, equities and cash flow. It could also include shareholders’ contribution and various other information at a given period of time. Accounting courses online in UK cover these aspects of a financial report, extensively.
Let’s look at the importance of having a financial statement for a company. This information is available for students studying finance courses in UK.
Importance of financial statements
A company needs to provide details of its finances to relevant authorities. It should report its financial statements to the Security and Exchange Commission (SEC). This is done on a quarterly and an annual basis. Furthermore, investors are also highly interested in these reports. This is because the statements contain important information on the company. These are income, expenses, profits and debts etc. Investors use this information to ascertain if the organization is up to meeting its obligations. Those are short-term and long-term obligations.
Let’s look at the major financial statements that are generally required. Many of the accounting courses online in UK provide a detailed description of these statements. They also provide insight into other aspects of financial accounting.
The balance sheet of a company shows the balance of assets, liabilities and equity at the completion of a time frame. This is also called the statement of financial position and is a vital report for any organization. It reports the account balance as at the date of reporting. However, the income statement reports the transactions completed during the period of reporting.
Assets are what a company owns and liabilities are what it owes to others. Equities are the difference between these two. Therefore equities can include retain earning, share capital, common stock, prefer stock and reserves. Finance courses in UK are great add-ons to start off your career in financial accounting. In fact, this is a field that has a lot of scope.
The income statement reports three major types of financial information of an entity. These are revenues, expenses and profit and loss for the period in concern. This statement is presented in two different formats defined by the IFRS. One is where the income statement and other comprehensive statements are presented together as a single statement. The other is where the income statement and other comprehensive statements are presented in two different statements. The latter is presented in varying formats.
According to many of the accounting courses online in UK, let’s see what revenues, expenses and profit and loss mean. Revenues are the sales of the products or services that the organization creates during the specified period. Expenses are the operating costs that the organization has to incur. This is in order to create the above goods or services. Also, you calculate these for the specific accounting period. Profit and loss is the net income that is a result of deducting expenses from revenue. This value could be positive, which is profit for the company or negative, which is a loss for the company.
Let’s look at the next major financial statement. This is according to the curriculum of a lot of the finance courses in UK.
Cash flow statement
The cash flow statement shows the movement of cash during a given time frame. It gives an idea of how much cash is left for the organization to invest in itself or to meet short-term obligations. It is also important when considering about paying dividends to shareholders. This comes as a perk for the latter for investing in the company. This report has details about the cash flow from; operating, investing and financing tasks.
Individuals including accounting personnel, investors, creditors and lenders need this information. Additionally, company directors and shareholders are typically interested in this statement. This is because it provides valuable information that they require. It helps in determining how the organization handles its cash.
Moreover, Finance courses in UK also describe about another important financial statement. You will learn about this, next.
Statement of changes in equity
Statement of changes in equity shows the contribution of the shareholders to the company. It provides information on the movement of equity and equity balance. This applies to what is left at the end of the accounting period in concern. In fact, this report is the result of the balance sheet and the income statement. So, these two reports need to be accurate in order for the statement of changes in equity to be accurate. Statement of changes in equity includes a lot of important information. These are classification of share capital, total share capital, retain earnings and dividend payment.
All of this could be too much of information to grasp from one session of reading. Following one of the many accounting courses online in UK will help you to become a professional in this field. Let’s look at how you can follow such a course. It will help you to expand your knowledge and skills in accounting and finance.
Accounting and Finance
We provide many courses in accounting and finance for students who are aspiring to take up a career in this field. Our courses include subject areas such as management accounting, financial reporting and financial accounting. You can also learn business economics, banking, business accounting and payroll management. In addition you get to know how to do office administration and bookkeeping. Popular awarding bodies such as CIMA and CPD & iAP accredit these courses.
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