To understand the balance sheet and the income statement, a simple presentation is used — both consist of two main parts displayed in tabular form.
Core accounting reports
The core accounting reports include:
- Balance sheet
- Income statement
These reports are an integral part of the annual financial statement of a company and show the financial position and performance of operations during the business year.
Users of the reports
The reports provide informational support in evaluating performance primarily for external users:
- Investors
- Creditors
- Suppliers
- Government agencies
- Tax authorities
- Statistics
…but also for internal users: employees, owners and the highest level of management.
Income statement — measuring performance
The income statement provides information on the company’s performance in a given period.
Performance is a broad concept, but at its shortest it can be defined as the degree of achievement of planned goals. The diversity of goals leaves room for different understandings of performance — but most often, performance is understood as achieving the profitability of operations.
To assess profitability, it is necessary to look at:
- Revenues generated by business activities
- Expenses incurred in the course of these activities
Core categories in the income statement
- Revenues
- Expenses
- Profit or loss (the final result)
Balance sheet — a picture of assets at a moment in time
The balance sheet is defined as a financial report that in a systematic manner presents the state of assets, liabilities and capital at a given moment.
It provides information on:
- Assets the company has at its disposal
- Sources of those assets — which sources of financing the company has used
Assets
| Asset items |
|---|
| Buildings |
| Machines |
| Transport vehicles |
| Business inventory |
| Cash on hand |
| Current account |
| Material |
| Small inventory |
| Work in progress |
| Finished goods |
| Goods and raw materials |
| Receivables from buyers |
Liabilities
- Capital
- Long-term liabilities
- Short-term liabilities
The value of assets and liabilities must be equal.
The complete set of financial statements
A full view of the position, performance and perspective of a company is provided by a set of financial statements that complement each other. The core elements of the set are:
- Balance sheet
- Income statement (checks the profitability of the company)
If you want to take a loan, obtain a bank guarantee, participate in a tender or take a car on lease — you will always be asked for these two reports, to verify your financial stability.
Quality of accounting — speed and precision
How good your accounting is can be checked by:
- The speed of producing these reports
- Their precision
To obtain such reports, you need to book regularly:
- All transactions
- Invoices
- Contracts
- Statements
With growing digitalization and software like Proventum, and in well-organized agencies like Finance Plus, the aim is to generate these reports as quickly as possible, sometimes in real time.
Want your balance sheets to always be up to date? Contact Finance Plus.
