Financial Statements of a Company
Most companies must prepare and submit financial statements. Behind this term lies a fairly simple concept in accounting. Indeed, it is usually the annual accounts. Soft Accounting offers you a complete sheet on the financial statements of a company and answering the questions: what is a financial statement? which companies must prepare financial statements
A financial statement, what is it and what is it for?
By definition, a financial statement is an accounting document that gives information about the situation of one of a company. This information may concern the state of its financial structure, the composition of its assets, the evaluation of its performance and the measurement of its profitability.
The financial statements summarize in a clear and structured manner the events that have affected a company throughout its existence as well as the transactions it has carried out with third parties. They allow any reader of accounts:
- carry out specific analyzes, particularly in the context of business buyback transactions, valuation of companies, mergers, demergers or partial asset transfers;
- make comparisons over time (the financial statements of the same company are compared each year);
- make comparisons in space (the financial statements of a company are compared with those of a competing company);
- make decisions (the management teams of a company use them as a support, a real decision-making tool).
The financial statements are intended for any interested party: partners, shareholders, officers, employees, bankers, investors and anyone else interested in them.
What are the main types of financial statement?
The income statement is used to measure the profitability generated by a company during a period called the financial year. It only includes data from the year in question and ignores those relating to previous years. It opposes, on the one hand, all the operations that have resulted in creating wealth for a company (these are the products: sales, subsidies, revenues, proceeds of sale of fixed assets ) and, on the other hand, those that had the effect of destroying wealth (these are expenses: purchases and consumption of materials, external expenses, taxes and duties, staff costs, financial charges and exceptional charges).
It compares, on the one hand, what it owns (its assets ranked in descending order of liquidity: fixed assets, inventories, trade receivables, cash and cash equivalents) and, on the other hand, what it owes (its classified liabilities). also in order of liquidity: capital, legal and statutory reserves, retained earnings or loss carry forwards, provisions, regulated provisions, financial debts, trade payable, tax and social debts and bank overdrafts). A balance sheet must always be balanced: the total amount of the asset must be equal to the total amount of the liability.
The balance sheet gives information on the financial situation of a company at a specific moment. It allows to study the financial structure and solvency. As part of these studies, it is generally reworked (some accounts items are reclassified) in order to arrive at a functional balance sheet.
As with the income statement, many financial ratios are calculated from a balance sheet. There are also three possible presentations for a balance sheet: the abbreviated balance sheet, the basic balance sheet or the developed balance sheet.
The appendix is a descriptive note that supplements the figures in the balance sheet and income statement. It allows a good reading of the annual accounts by providing additional appropriate information. In fact, in general, the appendix must only contain information on transactions, items or significant variations (in order not to drown the reading of this financial statement). Its purpose is to provide useful elements for understanding and decision-making.