The primary objective of financial statements is to issue information about an entity's financial position, the monetary results of operations, and cash flow in order for businesses to make economic decisions. Through the adoption of financial automation software, companies can ensure that their financial consolidation process is managed in an efficient, seamless, and well-timed manner.
What is a Financial Statement?
Financial statements are essentially a collection of summary-level reports and a detailed record of the financial information of an organization, including the business activities, assets, liabilities, contributed capital, equities, incomes, expenses, cash flow, and the financial performance of a company.
Fundamentally, financial statements are of 5 types - income statement, balance sheet, statement of change in equity, statements of cash flow, and note to financial statements. As such, a company must prepare and subsequently present these financial statements to independent auditors or government agencies as part of their annual report.
An organization’s accounts department or firms hired by the organization can also audit financial statements in order to ensure the transparency and accuracy of all records. Moreover, these reports need to be managed and maintained for the purposes of tax filing, financing, and investing.
Types of Financial Statements
Since financial statements are also a means for decision-makers, investors, and company heads to assess the income potential and financial soundness of an enterprise, it is important to familiarize yourself with the five major types of financial statement reports.
1. Income Statement
The income statement is what companies refer to in order to report an organization’s revenue, expenses, profits, and losses. Also called the profit and loss statement of an enterprise, these statements present the results of a company’s financial and operational activities.
2. Balance Sheet
When businesses want to look into their assets, liabilities, and stockholder’s equity for a specific reporting period, they refer to the balance sheet and its contents. It is also referred to as the statement of financial position.
3. Statement of Changes in Equity
The statement of change in equity presents every shareholder contribution as well as movement in equity (the difference between assets and liabilities from one accounting period to another). As such, the information in these reports includes share capital, retained earnings, dividend payment, and other reserves-related information.
4. Statement of Cash Flow
As the name suggests, statements of cash flow present a detailed report of a company’s cash flow for a specific reporting period. The statement itself includes three kinds of cash flows; cash flows from operations, cash flows from investing and cash flows from financing.
5. Notes to Financial Statements
These reports are essentially detailed assumptions made by company accountants while preparing the business’s income statement, balance sheet, statement of changes in equity, and statement of cash flow. These notes are made with the sole intention of auditors and financiers being able to understand the different types of financial statements.
Use cases of Financial Statements
When it comes to making long-term business-related decisions, the first thing company owners and decision-makers do is comb through the financial statements of the organization.
If the CEO or manager of a manufacturing enterprise has decided to continue or discontinue an aspect of the business, buy, rent, or lease production equipment, they’re going to first ask the accounting department to do a financial analysis of company reports.
As such, once accountants and auditors go through the income statement of that particular fiscal year or accounting period and present their findings, only then can financers make an investment decision accordingly.
What do companies do when they want to know how viable their current business plan or venture is? -- They make an analysis of the cash flow from operating activities.
Maintaining a complete report of the net amount of funds that are either coming in or being spent on a day-to-day basis by an organization allows it to look into and invest in future ventures as well.
Why adopting an automation software that extracts data from Financial Statements is ideal
It is given that a business’s accounting department possesses all sorts of processes in place in order to create monthly, quarterly, and yearly financial statements. But maintaining and managing these reports is a task in itself.
If companies are used to managing accounting reports manually or by using software that does only part of the job, the finance team ends up spending much of their time gathering data from one software and dumping it into excel sheets and other documents in order to put it into a standardized format.
Then there’s all that time spent in checking the accuracy of the information, editing and renaming information, and so forth.
But with the aid of intelligent Optical Character Recognition (OCR) software, such as the one provided by Docsumo, you no longer have to worry about customizing and analyzing data such as the income, profits & losses, and balance sheet statements of your business since the entire process is automated and can be completed within minutes.
Essentially, Docsumo’s OCR software does the job of reading and extracting data from all kinds of financial statements that are in the form of image files, PDF, or other file formats. As such, what would have taken hours of work can now be completed in a few clicks.