Due to the fact that it is a method of communicating information to the financial elements of a business company, accounting is frequently known as a language of business. The financial statements are the foundation of accounting as it is the step to obtain a concept about the financial condition of a business. The significance of the financial statement in accounting services in Singapore for small companies is uncountable. Its effectiveness could not be specified in simply a couple of words. Specifically, it is an evaluation of the practicality, stability and success of a company entity.
What is a Financial Statement?
A financial statement is to record the financial functions of a company and it consists of elements like balance sheet and profit and loss. This record is kept by every company to make the financiers, lending institutions and company owner familiar with the financial health of the company. It is shown structurally (Also see What is a Chart of Account?) so that everyone could quickly comprehend and understand the problems. A financial statement or report shows crucial information relating to profitability, liquidity and solvency of a company.
Effectiveness of Financial Statement
The significance of the financial statement is tremendous as it offers pertinent details about the business and satisfies the requirements of the interested bodies such as management, lenders, financiers, the government and so on. The functions of a financial statement are listed below:
Management
In the competitive environment, a company would stop working if there is no innovative plan, method or strategy. A financial statement is an excellent aid to management in comprehending the present position of the company while understanding the current pattern of development and possibility of it. Thinking about these elements, they can make a crucial long-lasting business choice.
Creditors
Financial institutions such as a bank, analyse and evaluate the financial statement to understand the financial condition of the company and whether it has going concern issue. They also consider this element to assess the credit terms provide to the company.
Government
Remarkably, a financial statement could be practical to the local government and other regulatory authorities. These authorities evaluate this report through different taxes and use this criterion to handle capital concern and utility guideline.
Investors
Both potential and present investors, utilise financial statements to examine the present state of the financial of the business such as its worth or working capital usage (Also see Components of Working Capital). It is a crucial element in making crucial choices on financial investment.
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