Business Financial Reports

The Business Financial Reports are the formal records that keep track of the various business financial activities.

The business financial reports are of 4 types:

1.Balance Sheet: The Balance Sheet records the assets and liabilities of a business. The balance sheet does not reflect a period of time but gives financial statements at a single point of time. Unlike the traditional one the modern balance sheet has three components- assets, liabilities and shareholders’ equity. Balance in the assets and liabilities are maintained using the process of double entry bookkeeping. The asset- liability gap gives the value of the shareholders’ equity and is hence known as the residual.

2.Income Statement: This is also known as the Profit and Loss Statement. This financial report shows how the net revenue of the company is converted to net income. The income statement, unlike the balance sheet, deals with a period of time. It shows the managers and the investors whether the company was at a loss or profit during the period under consideration. The income statement has certain lacunae. The items that may be relevant but not measurable are not brought under the purview of the income statement. Again some numbers depend on the accounting method while some other depends on judgment and estimates. In the single step income statement there are only two categories – revenues and expenses.

3. Cash Statement: This is another form of Business financial report, which shows the inflow and outflow of cash and equivalents of cash. The cash flow statement has three parts:

  • Operating activities: The operating activities deal with production, sales and delivery of the company’s product. It also deals with collection of payment from its customers.
  • Investing activities: The investing operations throw light on the purchase of long term assets required to make and sell its products. The investing activities cover capital expenditure and investments.
  • Financing Activities: the items that are included under the finance activity section are the dividends paid, sale or repurchase of the company’s stock and net borrowings.

    4. Statement of retained earnings: According to the Generally Accepted Accounting Principles, the statement of retained earnings is one of the basic financial statements. This business finance report basically keeps track of the changes in the retained earnings of the company. This financial statement makes use of the information of the income statement and provides information in the balance sheet. This business financial report is stirred by the net income earned over a period of time minus the dividends paid out to the shareholders.

    The retained earnings can be mathematically expressed as:

    Ending Retained Earnings = Beginning Retained Earnings + Investments – Dividends Paid + Net Income

    Users of Business financial reports

    There are two types of users of the Business Financial Reports

    Internal Users: The internal users include owners, managers and employees who are a part of the company

    External Users: The External Users include investors, government agencies, banks and other parties who are outside the company but require the financial information of the company for a number of reasons.

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