All the businesses set up in Florida already know for a fact that financial statements act as the backbone. From creditors, regulators, and managers to stakeholders, everyone needs financial statements to make informed decisions for the welfare of the business. Financial statements cannot be ignored, but the preparation can be a complex procedure, and a CPA in Lakeland, Florida, can make sure that there are no such discrepancies in the statement that can hinder the working of the business in any way.
Now, we shall take a closer look at the importance of financial statement preparation and analysis.
Understanding financial statements
Financial statements generally have three primary components: Income statement, Balance sheet, and Cash flow statement. And each has a different purpose.
- Income statement
An income statement also referred to as a profit and loss statement in numerous instances, is basically a document that gives a summary of a firm’s expenditures, revenue, and net or aggregate income over some time, generally yearly or quarterly. The income statement shows whether the firm is profitable or in loss.
- Balance sheet
A balance sheet gives an overview of the financial condition of a firm at a given point in time. The statement mentions the liabilities, assets, and equity of shareholders.
- Cash flow statement
The cash flow statement depicts the in-flow and out-flow of cash in a business within a particular period. It classifies cash flow into three categories: financing activities, operating activities, and investing activities.
Importance of financial statement preparation
Timely and accurate financial statement preparation is vital for numerous reasons, such as:
- Transparency and accountability
Financial statements make the business affairs transparent, allowing for better assessment and decision-making by the stakeholders. Moreover, it also helps to detect any misutilization of the resources of the firm, which could have been allocated better.
- Compliance
Some laws need firms to prepare as well as disclose the financial statements, keeping them in compliance with the standards and regulations.
- Investor confidence
Investors depend on the financial statements of a firm to assess the probability of growth and potential of a firm before investing. Financial statements that are prepared well can give confidence and bring more investors.
Financial statement analysis
After the preparation of financial statements, those statements can be utilized to dive deeper into the economic health and performance of a firm for better assessment and to highlight the changes needed for betterment. Some methods for financial statement analysis include Ratio analysis, Trend analysis, and Comparative analysis.
Role of CPA in preparation of financial statement
A CPA is a qualified professional who is well-versed in the process of preparing a financial statement, besides being good at almost every other finance-related job that you need assistance with. Hiring a CPA will give you peace of mind and bring more efficiency.
