Understanding Relevance In Accounting Financial Statements

Posted by Imam Larh on Saturday, 19 May 2018

Understanding Relevance In Accounting Financial Statements
Understanding Relevance In Accounting Financial Statements
Weaccounting - Relevant understanding according to experts - has a relationship and a close relationship with the subject matter that is being faced (Ainon Mohd). Relevant definitions are things that are similar and related to the current situation or in the proper context and connected to the conditions being experienced.

Understanding Relevance In Accounting

This discussion is about being relevant in the field of accounting financial statements. So that is relevant is the information generated by the Financial Statement should be able to provide clarity about the flow of corporate finance so that its information users can make the right decision.

Aims and Users of Financial Statements

Accounting Principle Board (APB)
  • The purpose of presenting the actual financial statement information is to the ready-made financial statement information is addressed? Accounting Principle Board (APB) Statement No. 4 (AICPA) describes Financial statements have general and specific objectives:
  • The general purpose: to present a statement of financial position, results of operations and changes in financial position fairly and in accordance with accepted accounting principles.
Specific objectives: provide information about wealth, net worth, liabilities, changes in wealth and liabilities, profit projections and other relevant information.

Trueblood Committee


Stating financial statements prioritize its function is "provide information useful in decision making."

Financial Accounting Standards

Stating that financial statements provide information for decision making. Decision-making is meant in the field of economic decisions.
"These economic decisions include such examples as the decision to appoint or change management, the decision to withhold or sell their investment in the company."
Components of Financial Statements

According to the Financial Accounting Standards, the complete financial statements include the Balance Sheet, Income Statement, Statement of Changes in Equity, Statements of Cash Flow Changes and Notes to Financial Statements.

1. Balance Sheet

Understanding the balance sheet is part of the financial report that is directly related to the financial position which includes assets, liabilities, and equity (capital). On the other hand, the balance sheet is also often defined as a financial statement that describes the financial position at a certain time in the company, such as 31 December.

2. Income Statement

This report will report the earnings and expenses of the company or related to performance measurement at a certain time (a period of time). The report covers income items, borrowing costs, profit and loss, tax expense, extraordinary items, gain or loss on the company's normal activities, minority interests and net profit or loss for the current period.

3. Statement of Changes in Equity

This report describes the increase or decrease in net assets or wealth during the period. Describe the gains or losses arising from the activities of the company over a certain period.

4. Cash Flow Changes Report

This report provides information about the company's ability to generate cash or cash equivalents and allows users to compare current value or the present value of future cash flows from various companies. This report will report cash flows during the specified periods categorized by operating, investing and financing activities.

5. Notes to the Financial Statements

Notes to the financial statements are reports that will disclose them about:
  1. Basic information on the preparation of financial statements and accounting policies applied to an important event in a company.
  2. The information required in the SFAS, however, is not presented in the balance sheet, income statement, cash flow statement, and statement of changes in equity (capital).
  3. Additional information not presented in the financial statements but needs to be made in order to make a fair presentation.
The user of Financial Statement

The users of these financial statements are actually very much, there are users of information from internal companies there are also users of external information company. According to the Financial Accounting Standards, users of financial information include:
"Current investors and potential investors, lenders, employees, suppliers and other business creditors, governments, customers, governments, institutions, and communities. (Party users of financial information)"
That was the definition of Relevant In Accounting Financial Statements. Hopefully useful to add insight all friends. Many and many thanks for his visit.

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