An understanding of financial statements is necessary for the people connected with the organization. It is very important for the successful administration of the organization. These statements are like windows to know the health of the company and owners are able to assess the strengths and weaknesses of their organization. They can accordingly plan for the future.
Financial statements consist Balance Sheet, Profit and Loss Account, and Cash Flow Statement. Additional notes and materials are provided along with the financial statements to the readers, to give a clear picture about the organization. Sometimes these statements are referred by different names, but the basic elements and other similar reports are same for any organization. All financial statements will not appear exactly the same i.e., the way of presentation may be different for different types of business.
Generally, a balance sheet consists assets, liabilities and equity. Assets can be broadly classified into fixed assets and current assets. Fixed assets indicate the long-term financial strength of the organization. They are amortized over a period of time. It is not easy to liquidate fixed assets i.e., they cannot be converted into cash easily. On the other hand, current asset can be liquidated quickly. By analyzing the current assets, we can assess the liquidity position and short-term solvency position of the organization.
Liabilities also can be classified into long-term debt and current liabilities. Long-term debt includes debentures and loans taken from financial institutions. Generally, they have a charge on assets. Thus, long-term liabilities are the indicators of long-term solvency position of the company. Current liabilities include bills/notes and accounts payable. If there is insufficient cash within the company, current liabilities have the ability to drag the company down. Equity is the amount of capital invested by the owners. If we look deeper into these items, we can understand that both these items are obligations for the company i.e., they need to be paid. Long-term liabilities and long assets indicate long-term solvency and current liabilities and current assets indicate the short solvency of the organization.
Profit and loss account indicates the profit or loss made by the company during a particular period. It also provides information about the earning per share and various appropriations made during the year. This is the main indicator of the profitability of the business. We can assess the performance or growth of the company by comparing the current year's profit with the previous year's profit.
Cash flow statement gives the information about the flow of cash in the organization. It indicates the liquidity strength of the organization.
Thus, an understanding of the financial statements is necessary for the users to assess the profitability, liquidity and solvency position of the organization. This can be done through analysis and interpretation of the financial statements. Various tools are used for analysis and interpretation. The objective of this paper in your course is also the same i.e., help understand financial statements through analysis and interpretation.
Email based Accounting assignment help - homework help at Expertsmind
Are you searching Accounting expert for help with Understanding Financial Statements questions? Understanding Financial Statements topic is not easier to learn without external help? We at www.expertsmind.com offer finest service of Accounting assignment help and Accounting homework help. Live tutors are available for 24x7 hours helping students in their Understanding Financial Statements related problems. We provide step by step Understanding Financial Statements question's answers with 100% plagiarism free content. We prepare quality content and notes for Understanding Financial Statements topic under Accounting theory and study material. These are avail for subscribed users and they can get advantages anytime.
Why Expertsmind for assignment help
- Higher degree holder and experienced experts network
- Punctuality and responsibility of work
- Quality solution with 100% plagiarism free answers
- Time on Delivery
- Privacy of information and details
- Excellence in solving Accounting questions in excels and word format.
- Best tutoring assistance 24x7 hours