Financial Statements & Record Keeping

Financial Statements & Record Keeping

To understand accounting, one should understand different financial statements and recordkeeping. Each is as important as the other to achieve understanding regarding your finances. Whether it’s an income statement, a balance statement, or a cash flow statement, they are all required by the accountant to handle the company’s finances. 

Understanding the different types of financial statements (e.g. income statements, balance sheets, cash flow statements)

Income statements, also known as “net income” or a “statement of earnings”, show a business’s profit. This happens by subtracting the company’s revenue from the company’s expenses, overseeing the profit over a given reporting period. 

The balance sheet reveals the company’s financial health. Since the day the company started, it kept a record of every transaction and reflects the business. This information is used by investors, business owners and accountants to see the value of the business. The purpose of cash flow statements is to tell how much cash the company has on hand for a specific hand.

It reverses monthly expenses, showing how much money is spent and earned, demonstrating the precise amount of cash the company had during that time. Showing changes in assets, liabilities, equity and liquidity.

Important of accurate record keeping for businesses

It is very important to have accurate information for recording keeping in business. Having accurate recordkeeping helps in handling and understanding the company’s finances. Accuracy, reliability, timelessness, consistency, and simplicity are four pillars of accurate recordkeeping.

Every transaction, spending or earning at the present moment helps to ensure accuracy. The recordkeeping should be based on verified and precise figures and recorded at that moment. It should also be categorized at the same time, if ever need to go back and verifier it should be there.

There shouldn’t be many entries, once in good enough. Entering the same information multiple times would only increase the risk of error. All the recordkeeping should be based on accepted accounting principles. 

Techniques for effective bookkeeping and recordkeeping 

There are many techniques for effective bookkeeping and record keeping. Before starting, one should know the difference between bookkeeping and recordkeeping. Bookkeeping is a record transaction involving the day-to-day financial transactions of a business. This includes balancing books, paying employees and creating invoices.

One part of a larger activity of accounting. Record keeping is a systematic record of monetary business transactions that helps paint a picture of assets, profits, losses and other financials. It helps businesses control expenses, minimize costs and provide important information for legal and tax purposes. 

Managing a business requires a company’s daily operation, making important decisions, and leading to the growth of the business overall. Despite the difference between record keeping and bookkeeping, there are some similarities. The effective way is to document every transaction, whether bookkeeping or recordkeeping. Daily records should be recorded and categorized to maintain an accurate and effective record of finances. 

Analyzing financial statements for decision-making

An accountant helps manage finances and the company, which adds to business growth, allowing the creation of a business strategy at the right time. Making the right decision at the right time, thus maximizing profits and growth. Setting up a budget, developing forecasts and measuring performance so we can achieve the company’s wider goal.

Regulations and standards for financial reporting and recordkeeping 

Financial Statement & Record Keeping should be done according to accepted principles. The principles are for recording, measuring, presenting and disclosing transactions. The Accounting Standards Board sets up these standards.

They are by GAAP (Generally Accepted Accounting Principles). Accounts must follow these standards in all companies when preparing financial statements. Even though there aren’t any laws enforcing these standards, most business partners in the US will be required to adhere to them. However, Canada has a system called International Financial Reporting Standards or IFRS

Public companies must follow these standards in their accounting practice. Which helps investors and authorities assess and compare financial statements with other companies. Private companies also adhere to these standards if they plan to go public with the company.

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