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Financial Reporting for the Rest of Us Series: The Basics

Published on

Feb 26

Daniel Rhodes

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Many employees find themselves full of skills to handle their duties well, and continue building those skills week after week. Some started off with very
   focused responsibilities, such as collecting payable invoices and entering these into the “accounting system.” They then become involved in budgeting
   and profit discussions, yet don’t have the background to truly understand the fundamentals. Though they’ve been building skills for many years, they
   are unfamiliar with what financial statements are and why they are important.
   Financial Reports include the Balance Sheet, Profit  Loss Statement (a.k.a. Income Statement), Statement of Retained Earnings, and Statement of
   Cash Flows as the documents which organizations track and review records of to determine how much money is being made (or not). The main purpose for
   preparing the reports is to share information with stakeholders of the business, shareowners and lenders.
   Certain basic financial questions must answerable in these documents:
   Is there a profit for the business or it is suffering a loss, and how much?
   Were all of the profits reinvested?
   Does the organization have capital for future growth?
   Where did the business get its capital, and is it making good use of the money?
   What’s the cash flow from the project (or loss) for the period?
   It should go without saying that financial reporting should be handled with both legal and ethical standards, without fraudulent activities.

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