Understanding, Purpose, Preparing Financial Statements

Posted by Imam Larh on Wednesday, 28 February 2018

The financial statements are written reports that provide quantitative information about the financial position and its changes, as well as the results achieved over a specified period. The financial statements are notes

financial information of a company in an accounting period that can be used to describe the performance of the company. The financial statements are part of financial reporting, that is, all aspects (the institutions involved [eg standard compilation, regulatory body of government or capital market, professional organization, and reporting entity], applicable regulations including [Generally Acceptable Accounting Principles]

relating to the supply and delivery of financial information. In general, financial statements include balance sheet, income statement, equity change report (capital), cash flow statement/fund flows report, and other records and reports and explanatory materials. In general, financial statements are prepared every once a year, however, there are also companies that compile financial statements quarterly, even monthly.

Financial Statement Objectives
According to Financial Accounting Standards, the purpose of financial statements is to provide information regarding the financial position, performance, and changes in the financial position of a company that is beneficial to a large number of users in decision making.

 According to M. Sadeli, the purpose of financial statements include:
  1. Provide reliable information about wealth and liabilities
  2. Present reliable information about changes in net worth of the company as a result of business activities
  3. Present reliable information about changes in net worth not derived from business activities
  4. Presenting information that can help the users in assessing the ability of companies to earn profits
  5. Presenting other information that is appropriate or relevant to the needs of the owners
Preparing Financial Statements In accordance with the Standards The financial statements generally consist of balance sheets, income statements, capital change reports, cash flow statements and notes and other reports and explanatory materials. However, in this discussion will be studied in relation to the balance sheet, income statement, and capital report.

1. Balance Sheet
A balance sheet or a statement of financial position is a list that describes the assets (assets), liabilities, and capital (equity) owned by an entity (company) at a given moment. The title of a balance sheet consists of the name of the entity or company, the name of the report, and the date of the balance sheet. 

For the body or content of the report consists of three parts, namely:
  1. Assets, ie economic resources owned by a company commonly expressed in units of money.
  2. Liability, ie debt to be paid by the company with money or services at a certain time in the future or bills of creditors to the company.
  3. Capital or equity is the right of the owner of the company to the assets (assets) of the company. Capital is included in the balance sheet under obligation.
2. Profit and loss statement
The income statement is prepared with the intent to describe the results of the company's operations within a certain period of time. The results of a company's operations are measured by comparing the earnings of the company with the expenses incurred to obtain the income. 

If the income is greater than the expense, the company is declared to make a profit, and if otherwise, the company suffers losses. The income statement should be titled, consisting of company name, report name, and reporting period. The contents of the income statement
consists of three main components, namely income and profit or loss.

3. Reports of changes in capital
Information about changes in owner's capital is usually set forth in a report called a change in the capital report. This capital may increase due to additional investment by the company's voters and because the company makes a profit. 

This capital can also be reduced because the owner takes the assets of the company for personal use and because the company suffered a loss. Reports of changes in capital are often referred to as "bridges" between the income statement and the balance sheet. The effect of profit or loss on capital is taken into account in the capital change report.

User of Financial Statement
The financial statements are presented to many interested parties including management, creditor, government, and other important parties. Here are some of the needs of users of financial statements (according to Financial Accounting Standards) include:

1. Investors
Investors know the financial statements to help determine whether to buy, hold or sell the investment as well as to assess the company's ability to pay dividends.

2. Employees
With these financial statements employees and groups representing them can know the stability and profitability of the company and to assess the company's ability to provide remuneration, retirement benefits, and employment opportunities.

3. Lender
The lender is interested in the financial information of the company that allows the lender to decide whether the loan and the interest can be paid at maturity.

4. Other Business Suppliers and Creditor
Suppliers and other business creditors are interested in financial information that allows them to decide whether the outstanding amount will be paid at maturity or not.

5. Customers
These customers are concerned with the company's survival, especially if they are involved in long-term agreements or are dependent on the company.

6. Government
The government needs information (financial statements) to regulate company activities, establish tax policies and as a basis for compiling national income statistics and other statistics.

7. Society
The financial statements can help the community by providing information on the trend (trend) and the latest development of corporate prosperity as well as a series of corporate activities.

Qualitative Characteristics of Financial Statements
Qualitative characteristics are the characteristics that make information in the financial statements useful to the wearer. The following qualitative characteristics, which include:

1. Understandable
The information presented in the financial statements is understandable to the participants and the form and the terms are tailored to the limits of the users.

2. Relevant
The financial statements are considered relevant if the information presented therein may influence the user's decision.

3. Reliability
The information in the financial statements is free from misleading notions and material faults.

4. Comparable
The information presented will be more useful when compared with the financial statements in the previous period.

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