• Financial Reporting Basics

    Balance Sheet

    The Balance Sheet contains the financial condition of a firm at a particular time. This includes the assets, liabilities, equity capital etc.

    Assets = Liabilities + Equity Capital

    Income Statement

    Income statement contains all the income and expense related details of a company over a period of time. This includes all types of revenues, expenses, profit, loss and tax details.

    Cash Flow Statement

    The cash flow statement contains all the incoming and outgoing cash flows of the firm. The cash flows can be classified in three parts

    • Operating Cash Flow
    • Financing Cash Flow
    • Investing Cash Flow.

    Financial Notes

    Financial notes contains all the statement related details like

    • The accounting method used.
    • Assumptions for different calculations like deferred tax asset and liability, depreciation.
    • Audited or Un-audited by external authority.
    • Any financial decision taken by management.

    Other Details

    The other details related to financial reporting will be like

    • The complete asset details.
    • Information about hedging if applicable.
    • Information about sales distribution based on category.
    • Any particular client or business partner etc.

    Double Entry Accounting

    Double entry accounting refers to both side entry of a particular transaction so that both side of the balance sheet should match with each other. This can be done in the following ways

    • An increase in asset with the same decrease in asset.
    • An increase in liability with the same decrease in liability.
    • An increase (decrease) in asset with the same increase (decrease) in liability.

    Separate Entity

    As per separate entity, the company and the company owners are considered to be separate entities. Based on that, all the financial statements are prepared.

    Accounting system

    Accounting system is maintained to automate the financial reporting process. The main parts of the accounting system are

    • Journal Entry: It contains the transaction level amounts with the related details.
    • General ledger: It sorts the journal entries based on the accounts. Different accounts can refer to different types of transaction like payment, VAT, Tax etc.
    • At the end, the trial balances are prepared based on the general ledger entries. If there is any mismatch then adjusted journal entries are created to match them. The adjusted entries are recorded in the adjusted trial balance.
    • After that the final financial statements are prepared from the adjusted trail balances for different accounts.

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