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Some of the purposes of accounting are to develop and sustain statements, which inform the management of the performance of the business, and to develop realistic expectation for the future.
The main statements, which are essential:
Profit and Loss Statement
The profit and loss (P&L) statement reports on the business transaction in financial term over a defined period of time. ... Furthermore, the P&L helps management recognise revenue and expenses during this period and to determine the net profit. ... Because cash is the most liquid asset, it is to some extent resembles the lifeblood of the business, it assess the business financial strength. The cash flow statement allows the management to assess the business ability to generate positive future net cash flow, its ability to meet its current obligations, reasons for differences between net income and associated net cash income.
Balance sheet
The balance sheet is a statement of the financial condition or financial position at a given point in time. ...
The balance sheet accounts are based on the conventional accounting equation:
Assets = Liabilities + Owners Equity (net worth)
This equation means anything owned by the business (asset) is either owed to creditors (liabilities) or to the owner (owners equity)
The balance sheet informs us what resources management has available to operate the business during the year. Therefore it provides a platform for management plan subsequent events for that year, by understanding the asset at their disposable, financial commitments to their creditors and ultimately a analysis of return on investment.
Approximate Word count = 1117
Approximate Pages = 4.5
(250 words per page double spaced)
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