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Financial statements- What Are They And What Are Their Types

When talking about accounting statements or financial statements, reference is made to a type of report that allows providing an accurate image of the existing financial conditions in an organization.

These are documents that offer the possibility of making an interpretation or an analysis in relation to the information of the company, in order to achieve a more accurate decision-making for the benefit of its growth.

In this article, we will tell you what financial statements are, what types exist, and what their goals are. If you are interested in the topic, keep reading until the end.

Let’s get started!

What Are Financial Statements?

Financial statements go by various names. They are called annual accounts, accounting statements or financial reports and constitute the reflection of an organization’s accounting and its economic structure. These documents reflect the economic activities that are usually carried out within the company, during a specific period of time.

Normally, the financial statements show the fiscal year corresponding to one year within the organization. This allows investors to weigh whether the company has a solvent structure or not, and whether it is profitable to invest in it.

What Are The Financial Statements?

One of the most important points is to know for sure which types of financial statements are most used. The first thing you should know is that they can basically be classified into five types. They are: balance sheet, cash flow statements, income statement, and statement of changes in net worth and memory.

Next, let’s see what each of them consists of.

1. Balance Sheet

This is an accounting document whose purpose is to inform about the situation of the company.It includes its rights and obligations, as well as its reserves and capital, valued based on generally accepted accounting criteria.

This balance shows the following:

  • Assets: represents cash, which has been deposited in the bank or also assets.
  • Liabilities: means the debts that the organization has contracted with banks, suppliers and other financial entities.
  • Net worth: are the contributions made by the partners and other benefits that have been caused by the company.

2. Income Statement

The income statement is a comparison of the organization’s revenues against its costs. It also reveals whether there have been benefits to pay dividends.

This type of account has two fundamental elements:

  • Expenses: involves outflows of economic resources that tend to decrease assets or result in increased liabilities.
  • Income: they constitute the economic entries or the elimination of obligations that cause an increase in equity.

3. Statements Of Change In Equity

The statement of changes in equity shows the valuations on the inputs and outputs in the company’s operations. It takes into account the time between the beginning of the period and the end of it, which is generally one year.

4. Cash Flow Statements

It provides a demonstration of the sources, regularity, and use of the company’s cash, through the use of direct or indirect estimates. It is worth mentioning that the direct estimate gives a sample of the net cash generated by the operations. This is of vital importance to carry out an analysis of the situation of the company with regard to its liquidity.

5. Memory

This is a document used in accounting, which serves to expand the information that is contained in the annual accounts.Thus, the report must be presented and prepared together with the rest of the financial statements.

The purpose of an accounting statement is to expand, complete and clarify the rest of the documents that are part of the annual accounts.

How Technology Helps With Financial Statements?

Both financial planning and accounting statements are of great importance for organizations.

For this reason, the use of technological tools that make it possible to carry out these tasks more efficiently constitutes a great step that, sooner or later, must be taken.

Although we understand that they are processes that are well known by the Administration department of an organization, the idea is to improve performance. Consequently, the use of digital tools will optimize these procedures.

There are several options that you can advance for the digital transformation of your company in accounting matters:

1. Investment Fund Accounting Software

The investment fund accounting software is an indispensable tool for financial planning, as it guarantees one of the easiest ways to carry out the financial statement analysis process.

The implementation of this tool will allow you to forget about problems related to data duplication and calculation errors.

This generates as a consequence that you will be able to more easily manage all the resources of the organization and calculate the financial statements more reliably.

2. Normative Applications Of Economics And Finance

Economics and finance tools are essential to keep up with what’s happening in the business world. If, for example, you want to know more about the functioning of the global market -since your brand is in an advanced state of development-, it will be very convenient to have a couple of applications that provide you with the updates and news that circulate in the market.

3. Billing Manager

Billing is one of the strategic tasks for organizations, since it will not only keep accounts clear, but will also minimize the company’s net expenses.

A tool with which the automation of billing tasks can be maintained will help to take care of the faithful record of all expenses and income