The purpose of financial statements is to provide data about the financial position, performance and changes in financial position of an organization that is useful to a wide range of users in making economic decisions. 1. Evaluate the Past Performance and Current Position: Past performance is a good indicator for future performance. As an investor or creditor, they are interested in the past revenues, expenses, net income, cash flow, return on investment and others. These offer a means for judging the past performance of a business and also may indicators of future performance.
Business requires the appropriation of funds and the analysis of how these funds are and should be used. The primary task of an accountant is to account for all transactions that were done over a period of time for a specific organization and to arrange these facts into financial statements that can be analyzed. The two main types of accounting, financial and managerial accounting are used to evaluate a businesses financial status through financial information that is specific to the audience. Although financial and managerial accounting use similar primary financial statements, the analysis of the documents and the information presented differs tremendously primarily because the financial accounting statements are directed to external users and the managerial accounting statements are directed to internal users. This difference varies the information presented on the financial statements and the analysis that can be surmised from reviewing the documents.
Planning, co-ordination, control and communications. It helps the management to formulate future plans • The ratios are examined over time and the financial data obtained from them can be used to make intra firm analysis, inter firm analysis- comparisons with competitors and industry average comparison. • It has wide range of information for all types of users. LIMITATIONS: • The ratios are based on financial statements. These financial statements have certain limitations.
RATIO AND FINANCIAL STATEMENT ANAYLSIS Ratio and Financial Statement Analysis can be seen as a means to an end i.e. Ratio analysis is a financial tool to derive a Financial Statement. Financial Analysis are accounting reports in respect of economic activities prepared periodically to measure the performance of the business. It could also be said to be the analysis established for evaluating the performance of companies. Such criteria are used as parameters in deciding whether the organisation is performing satisfactorily or not.
The period of time that the statement spreads is picked by the business and will differ. The statement of cash flows reports the sources and uses of cash by operating activities, investing activities, financing activities, and certain supplemental information for the period specified. The statement of stockholders’ equity sho... ... middle of paper ... ...meaning of far reaching examples and issues as time goes on. Deliberately deciphered in the correct connection, recognizing there are numerous other imperative variables and markers included in evaluating execution (Demonstratingvalue, 2013). Conclusion In conclusion, using financial statements in managerial accounting helps with the planning, controlling, and decision making process of a company.
The objectives of the financial analysis: Financial analysis aims to study the calendar established study liquidity and profitability and indebtedness and stability in the facility. Financial ratios: Financial ratios used in financial analysis to extract or derive a relationship between the two figures is attributed to each other. These ratios help identify established to develop the subject of analysis. Financial ratios are one tools and techniques of financial analysis in the processing and analysis. The concept represents a comprehensive package of control methods and tools is the classic tools and methods and effective tools which are methods that can detect deviations phenomenon and is represented by the methods of control over performance.
1.1.6 Importance of financial statements The financial statements are a mirror which reflects the financial position and operating strength or shortcoming of the concern. These statements are useful to management, investors, creditors, bankers, workers, government and public at large. Following major uses of financial statements: As a report of stewardship. As a basis for fiscal policy. To determine the legality of dividends.
In addition, the objective of the financial statement user is to find and interpret this data in order to have answers for questions regarding the organisation such as: Would an investment generate returns, or what is the degree of risk inherent in the investment (M. Fraser, Ormiston 1998). Additionally, an organisation’s financial conditions are the main concern to investors and creditors. Investors are simply the capital providers and they rely on an organisation’s financial conditions for both the safety and profitability of their investments. Moreover, investors must to know where their money was spent and where it is now. The financial statement of balance sheet reports that kind of issues by providing detailed information about an organisation’s asset investments.
Oval: Financial Reporting Oval: Management Accounting Oval: Financial Management Financial Accounting deals with the measurements and reports of the financial position of the organisation and providies this to external users such as the shareholders, creditors, government agencies, etc. 2. " Finacial Accounting is the art of recording, classifying and summarising in a significant anner and in terms of money,... ... middle of paper ... ...ctual performance with budgeted performance is called budgetary control. This is a crucial activity because every organisation has to evaluate whether the activities and operations are going in the right direction for achieving the organisational objectives. The actual performance has to be compared with the budgeted performance on the basis of actual level of activity.
As for the financial accounting course it is focused on the financial data creation. The main subjects are preparation of data that relates to cash flow, the credit worthiness, along with both the success and solidity. “The primary objective of financial accounting is the preparation of financial statements - including the balance sheet, income statement and cash flow statement - that encapsulates the company 's operating performance over a particular period, and financial position at a specific point in time”, Investopedia, para 1,