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Definition of FINANCIAL STATEMENTS: Definition, Objectives & Types

Definition of Financial Statements

Financial statements are financial records that present summaries of financial transactions in a company for a period. Financial statements will be a reference for companies to see the company's performance during a period.

Some also say that financial statements are the final result of all financial transaction data that will be used to help companies make the right decisions.

 Understanding Reports Finance Is

To deepen your understanding of the definition of financial statements, we have included the following opinions of experts regarding financial statements, which are as follows.

Kieso et al

According to Kieso et al, financial statements is a means by which an entity can communicate circumstances related to its financial condition to interested parties, both internal and external entities.

Munawir

According to Munawir, financial statements are the result of an accounting process that can be used to communicate financial data or an activity companies to parties concerned with such data .

Irham Fahmi

Irfan Fahmi stated that financial statements are information that describes the condition of a company. Which it will be an information that describes the performance of a company.

Objectives of Financial Statements

 Understanding Financial Statements and Their Purposes

In general, there are three objectives of financial statements, which are as follows.

1 Providing Financial Information for Users

Financial statements are reports that are prepared based on financial related activities of the company. These activity data will be managed and provide information regarding financial position, asset position, operating results, etc.

Such information can be used by users as a reference in making decisions. In this case, the user can mean the owner, shareholder, creditor, etc.

2. Management Responsibility Tool

In addition to providing information, financial statements will also be used as a management accountability tool. Management will report what has been done in one period. And the report can be a reference whether financial related activities are carried out correctly or not.

Therefore, financial statements cannot be confused with numbers. Each number that appears must have proof, for example with the support of proof of transaction. Financial statements can also be used to detect whether there are irregularities in the use of company finances.

3. Material Evaluation

With the existence of financial statements, the company has detailed information on financial flows and their use. This report can be a reference to determine the company's success by assessing whether the targets for one period have been met or not.

Furthermore, the report can be an evaluation material for companies to assess the strengths and weaknesses of the activities that have been carried out during a period . Companies can cut expenses that are considered less effective and allocate finance to things that are more profitable.

Types of Financial Statements and their Forms

1. Income Statement

As the name implies, the function of the income statement is to provide information about the loss or profit gained by a company in one period. The company will benefit if the income is more than the expense. Conversely, the company will suffer losses if the burden turns out to be more than revenue.

In addition to calculating profits and losses obtained, the existence of an income statement will also help the company in calculating the amount of tax that must be paid by the company. [19659003] With the existence of this report, it is hoped that the company can improve efficiency by making the output load a reference. There are two forms of profit and loss statements, namely single-step and multi-step.

 Definition of Financial Statements and Examples

Calculations on the income statement in the form of single step have a simple arrangement. We only need to group income together and expenses into one.

After grouping, we calculate total income and expenses. Then profit / loss is calculated by reducing income with expenses. The picture above is an example of a single step income statement.

 Multi-step

For multi-step, we must separate transactions based on their categories, which are operational or non-operational. Operational transactions are any income or expenses derived from the main activity. While non-operational transactions are generated from activities outside the main activity.

After separating the two categories of transactions, then we calculate the profit / loss for each category. The picture above is an example of a multi step income statement in the form of a multi step.

2. Capital Change Report

 Capital Change Report

Capital change report is a type of report used to monitor changes in capital owned by a company. At the beginning of its establishment, the company certainly has capital that will be used for company operations. After operating, the company's finances will naturally experience inflows and outflows.

Inflows and outflows can be in the form of revenues and expenses, both of which will determine the profits and losses of the company. If the company makes a profit, the capital will increase. And if the company suffers losses, the capital will be reduced.

In addition to providing information about the amount of capital owned by the company, the report on changes in capital will also be a reference for the company to see what are the factors that cause changes in capital. That way, the company can evaluate and improve its performance in the next period.

3. Balance Sheet Reports

 Balance Sheet Reports

There are three elements in a company's balance sheet, namely assets, liabilities, and capital. Assets are assets owned by companies that are considered to have benefits in the future. Liability is a type of debt that must be paid by the company. While capital is assets owned by the company's shareholders.

Now, this balance sheet report is used to monitor the company's finances by ensuring the position of assets, liabilities, and capital in one balance. The intended balance is when the value of assets is equal to the value of liabilities plus the value of capital.

There are two forms commonly used to present financial statements namely horizontal / stroto ( account form ) and vertical / stafel ( report form )

4. Cash Flow Statement

 Definition of Financial Statements and Reports

Cash flow statements are a type of report that serves to show the amount of cash in and out of a company in a certain period.

Several elements are included in the flow cash for example is cash income and cash investment from the owner, expenses incurred, and debt payments. Cash flow statements are generally classified into 3 types of activities, namely operational, investment, and funding.

In addition to showing inflows and outflows, cash flow statements will also be used as a means of accounting for cash flows in one period and as an indicator of the amount of cash flows in future period.

5. Report on Financial Statements

 Report on Financial Statements

Reports on financial statements are reports prepared from the four reports mentioned above. This report was made to facilitate overall interpretation of the four other financial statements. Most companies only focus on four financial statements, so this report is not very familiar.

In the report on the financial statements are usually also included notes to provide details or details of data related to the four existing financial statements.

Well, maybe so this article about understanding financial statements. Hopefully the explanation above can make it easier for readers to understand the financial statement material Thank you.

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