Understanding Financial Reports and Their Benefits

The definition of a financial report is a written record conveying a company's business activities and financial performance during a certain period. Financial reports are used by accountants, government agencies, firms, and others, to ensure the accuracy of taxes, financing, or investments.

Financial reports must be made as accurately as possible and must even include evidence as accountability that a transaction occurred. This aims to determine the financial condition of the company. Apart from that, the company will also know profits, losses and tax payments in the financial statements.

Evaluation of financial reports is usually carried out at the end of the period in each company. This activity is important so that you can find out if your business is going well or down. If it goes up, you have to maintain and develop it, and if vice versa you have to create a strategy so that it can be stable and the business will go up.

Understanding Financial Reports According to Experts

There is an understanding of financial reports put forward by experts in Indonesia regarding financial reports. Here are 5 summaries that we can quote from several sources:

1. According to SAK (Financial Accounting Standards)

Financial Accounting Standards state that financial reports are a reporting process that includes balance sheets, profit and loss reports, and reports on changes in financial position which are presented in various ways, such as note reports, cash flows, and other reports that are part of integral financial reports.

2. According to Harnanto (2002:31)

According to Hartono, financial reports are the final result of the accounting process. Consists of 2 main reports, namely the balance sheet and the profit and loss calculation report. Has complementary characteristics such as the retained earnings report in the source and use of funds report.

3. According to Machfoedz and Mahmudi (2008:1.18)

According to Machfoedz and Mahmudi (2008:1.18) financial reports are the final result of the accounting process. The report starts with proof of transactions, after that it will be recorded in a diary called a journal. Next, periodically the journals are grouped into ledger books according to the transactions.

4. According to the Indonesian Accounting Association

The definition of financial reports according to the Indonesian Accounting Association is a structure that presents the financial position and financial performance of an entity. The general purpose of financial reports is for the public interest, in the form of presenting information regarding the financial position, performance and cash flow of the entity, which is useful in providing economic decisions for users.

5. According to Sundjaja and Barlian

According to Sundjaja and Barlian, financial reports state that reports present the results of the accounting process which are used as communication tools by several parties. This person is the one who manages and has an interest in financial data and company activities.

Understanding Financial Reports and their Types for Companies

Every company and business venture must have financial reports. In general, there are five types of financial reports prepared by an entity monthly, quarterly, annually or for any period required by management. The five types of financial reports include profit and loss reports, cash flow reports, capital changes reports, balance sheets and notes to financial reports.

This is the meaning of the five types of reports:

1. Profit and Loss Statement

This report states the financial performance of an organization for the entire reporting period. It starts with sales, and then subtracts all costs incurred during the period to arrive at net profit or loss.

The earnings per share figure is added if the financial statements are published by a public company. It is considered the most important financial report, because it describes performance. There are two types of income statements, namely:

• Single step income statement: This means 1 income category and 1 expense category. Usually this report is used by start-up businesses or MSMEs.
  

• Multiple step profit and loss report: This report requires accountants to separate cost accounts into other accounts which are of course more relevant and detailed which can be used based on their function. This financial report is usually used in large companies.
  

2. Cash Flow Statement

The cash flow report states the cash inflows and outflows experienced by the company during the reporting period. This cash flow is broken down into three classifications, namely cash investment, cash income, and the amount of cash spent by the company. This document can be difficult to assemble, and is more often issued only to outside parties.

3. Capital Change Report

The report on changes in capital or commonly called equity aims to document the increase or decrease in all changes in equity during the reporting period. These changes are the issuance or purchase of shares, dividends issued, and profits or losses.

These note documents are usually not included when financial reports are issued internally, because the information they contain is not very useful to the management team. Changes in capital are not actually considered bad, companies also need changes in capital to continue operating. As long as the reasons are strong and clear, the decision is definitely good for the company.

4. Financial Balance Report

The financial balance report shows three main things, namely assets, liabilities and equity. With a balance sheet report, you can see business interests and analyze the company's overall financial position and its ability to pay for its operating needs.

5. Notes to Financial Reports

This report provides additional information relating to the company's operations and financial position which is considered an integral part of the financial statements. Even though it is not mandatory, notes on these financial reports will clarify certain parties who often reveal financial problems in the business or company.

Benefits of Financial Reports that You Must Know!

After discussing the meaning of financial reports and their types, it is a good idea to discuss what benefits are obtained apart from for entrepreneurs or businesses. There are several parties who benefit from financial reports.

The first party is company management, he is the most important person who has the right to know the financial reports. That way, management can ensure that all financial-related activity processes are running well. Management will also support future business planning.

The second party is an investor, for example you are an investor in a company. So you have the right to know whether the capital the company provides has been used appropriately. So you and other investors will feel confident in the business.

Third parties, namely creditors, are parties who provide loans to support your business. Financial reports are useful for stating information about the company's financial condition as a consideration for creditors in rejecting or approving loans.

The final party who is required to know the company's financial reports is the government. The obligation to pay taxes is something that must be paid according to the figures written in the entrepreneur's report. The earlier you make a report, the more likely your company will avoid unwanted things such as tax evasion.

Closing

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