9 Things You Need To Know About Financial Statements

Financial StatementEvery business owners, company investors and board of directors would like to see how their company performing financially. A need for preparing financial statements becomes a routine part for any organization. These financial statements tell business owners, companies board of directors a true picture about the health of their organization. Therefore, interpreting and understanding these financial statements becomes important on the part of investors, owners and companies board of directors.

What is Financial Statements?

Financial statements are formal record of the financial activities and position of a business, person, or any organization or a legal entity. The financial activities are presented in a structured manner which is easy to read and understand by any individual. The key financial information’s are recorded either on:

  • Income Statement
  • Balance Sheet
  • Statement of Cash Flow

In this article, I will explain you what the financial statements have to offer and how to use them to work in your favor.

  1. Business Investor and Financial Analyst all use Balance Sheet, Income statement and Statement of cash flow before making any financial decision. These statements truly reflect the financial health of any organization. The other statements such as statement of owner equity, retained earnings are important too but not critical. Investors can refer them also to make their financial decision.
  2. The financial statements are widely used to develop a score card to help business owner to compare the score card with actual and make any decision if there is any variance between the score card and actual results. Financial Analyst prepares this score card based on the historical financial information presented by the company in the form of Financial Statements.
  3. The financial statements are widely used by financial analyst to calculate various financial ratios which tend to show an indicator of company present performance and where company is heading in the future. These financial ratios are often presented to board of directors or investors for review.
  4. An active investor likes to see these statements before investing in to company. The auditor of company uses these financial statements to prepare his audit report. The audit report can either be unaudited which is based on mid-year financial statement and final auditor report which is normally completed after the company financial reporting period ends.
  5. If the company owns several other subsidiaries companies, the financial statements can also be prepared as consolidated financial statement where it includes financial information of both parent company and all its subsidiaries companies.
  6. GAAP (generally accepted accounting principles) rules followed by majority of large companies which allow the company to prepare their financial statements according to GAAP. There are basically two conventions, one of historical cost and other one accrual accounting, according to GAAP, the assets are valued at their historical cost whereas revenues and expenses are recoded when they are incurred. Therefore, the investor should really need to understand the statement of cash flow of any organization to see health of the company performance.
  7. Income statement is another statement that cannot be overlooked by any investor. Income statement normally reveals the ability of a business of how much business generates a profit. On the other hand, it does not reflect how much of assets and liabilities business required to generate a profit.
  8. Investor or financial analyst can perform a variance analysis if they have the financial information’s to see some powerful indicator such as profitability trend, sales trend and revenue trend. These variance analyses help the investors to make their financial decisions.
  9. Cash flow statement is the most important financial statement for any business mainly because it focuses solely on changes in cash inflows and outflows over a period of time. This report presents investors a more clear view of a company’s cash flows than the income statement, which can sometimes present skewed results, especially when accruals are required to be maintained according to GAAP

Conclusion:

An overview of the above financial statement helps the readers to see a bigger picture of the company. However, the beginning investor should also prepare to learn more about investment qualities before they invest in the companies.

Still confused about financial statement? Connect with online accounting tutor to understand more about financial statements and improve learning before investing.

How do you get started in accounting?

Online Math TutorWhen it comes to accounting, there are many different aspects that one needs to be aware of, Management Accounting, Cost Accounting, Financial Accounting, Taxation Laws, and a lot other rules, regulations and principles.  But at the same time it is easy to get overwhelmed owing to the fact that there is so much to learn and take care of. That is why most professionals recommend that one goes in for accounting help online in order to understand the basics and the various nuances of accountancy. Select a good accountancy course & understand the various nuances. That is all you need to do! Here are some tips that are sure to help selecting a good accounts tutor or course:

Learning accounts late in life:

There are people who are afraid of learning accounts later in their lives, i.e. after their school or college years as they think they will not be able to understand the same. Today, there are various online tutors and institutes that teach accounting in a simple and practical method. This way one will not only be able to learn the basics of accounting but also apply the various rules and principles of accounting. Also, not only does the accountancy tutor help in understanding accounts as a whole, he or she will even help the students in real life scenarios. This training makes all the more better for the students.  There are even online courses that offer certifications in accounts which again is a very significant advantage for people who are looking to have a professional career in the field of accountancy.

Convenience of online courses:

Another significant advantage of learning accounts online is the fact that one can learn in the convenience of their homes or offices or any other place for that matter. Also, one need not commit to a particular time of the day but he or she can study at any time during the day or even night. Queries and doubts can be sent in to the tutor over email and they will promptly reply back with solutions to them.

Selecting the Right Course:

After learning the basics of accounting, one needs to decide which aspect of accounting that they wish to specialize in. As mentioned earlier, there are many different aspects of accountancy and one will need to decide what specialization suits them best. Also, there are a lot of different fields where accountancy is required such as small businesses, individual accounts, and it is important that one is able to decide which field they wish to work in.

Last Step — Getting Hired:

Once a person has completed all the courses the next logical step is to get a job in the field of their choice. Many people are already aware of possible places to aware or have references that can help them out for the same. There are others who have done the course along with their college degree and are now going to opt for a corporate career where accountancy will be a part of their job profile. And lastly, there are some who will either be freelancing or are now going to look for a job. As such, there are many places that one can look for a job. The list includes newspaper advertisements, online advertisements and even job portals. Today, it is very easy to find entry-level accounting jobs.

Today one can easily get online accounting help and enhance their professional lives. Not only are there many different courses and tutors available, there are even online certification options from many reputed institutions and even well-known universities. All that is needed is a bit of research and patience.

Is Managerial Accounting and Cost Accounting the Same?

online tutorsManaging the accounts holds a great degree of importance for any firm irrespective of its size. It is vital for a firm to know its financial standing and also for dealing with taxation rules, financial obligations and various other aspects of running a business. While there are many different methodologies and aspects of accounting, the one very important accounting methodology is managerial accounting. It is the process of accumulation of data, measuring the same and reporting the information in the form of clear analysis. This information is known to be useful not only for the internal management but also for the various external stakeholders of the business or organization. Here the internal team of the company may include the Chairman, Directors, the CEO’s and the CFO’s, the division heads and others while the external stakeholders include any entity that has a direct or indirect financial interest in the said organization or company. For example, financial houses or banks that may have given out loans or mortgages to the company, investors and other such individuals or entities.

Managerial accounting and Cost accounting is one and the same thing. Though the terms are different, the implication is the same. This is primarily because both managerial accounting and cost accounting involve the process of maintaining records related to the past present and future operating costs of any company and converting the obtained data into useful information for the stakeholders.

The various principles of managerial accounting are useful for a number of reasons:

  1. Managing the performance and the growth of the business
  2. Reducing the operating costs and other expenses
  3. Determining the prices of goods and services
  4. Determining the cost of the supplies purchased
  5. Determining the costs of non-value added activities and programs
  6. Initiate or discontinue any practice, activity or program that may affect the profits of and the bottom-line of the business.

Another important piece of information that we can get from cost accounting is the estimate future cost figures. This helps preparing the budget for the future. Once this budget has been prepared, both the future cost estimates and the budget itself can be used as a reference for determining the actual performance of the firm. As such, the accounting principles are a crucial source of information for any business today. It not only helps achieving the core objectives of improving the efficiency of the firm, but also helps in consistent improvement in the overall output of the firm with respect to both the external and internal stakeholders.

The modern accounting principles originated during the era of the Industrial Revolution. It was during this time that the complexities of managing any business of a considerable size led to the development of these principles for tracking costs, recording expenses and thus help business managers and owners to make better decisions and improve profitability while simultaneously reducing expenses and possible losses.

Today, almost every business, small, medium or large, non-profit organizations and even governmental agencies and institutions make use of the various principles of cost accounting for determining their long-term and short-term goals. The information obtained with the help of cost accounting is complimented with financial accounting, marketing strategies and legal knowledge in order to make a complete business plan by business owners and other personnel involved in the decision making process.

An interesting fact here is that while managerial accounting and cost accounting are the same, financial accounting is something completely different. While the former is important for making the big decisions, the latter will help one determine the financial health of the organization. Decisions such as the location of the business, the overall profitability, the bottom line and others are determined with the help of financial accounting. Also, while managers and business owners themselves can do managerial accounting, financial accounting will require the help of professionals to be carried out effectively.

Where and how can I learn basic accounting most effectively?

Why Choose Native English Tutor to Learn English?Maintaining accounts of expenses and income is one of the most basic functions of mankind. Knowing one’s personal income, the expenses incurred on a daily, monthly and yearly basis. Understanding the taxation norms and also knowing where to invest one’s money to get the most returns is something that every individual needs to know in today’s times. Apart from that, there are also various government norms that one has to follow while maintaining accounts and this applies not only to an individual but also to various companies and organizations. While the rules may be different, the basic principles of accounting are the same everywhere. Today, one is expected to learn the basic accounting principles from high school itself. However, there are some courses that do not have the subject of accounts as mandatory and this happens in many fields. As such, there are many alternative methods and sources from where one can learn and master the art of basic accounting.

In layman terms, accounting is getting all the financial information pertaining to a person or a business for the purpose of taxation, investment calculations and other financial decisions. There are various rules, conditions and terminologies that one needs to be aware of when it comes to accountancy. The best way to learn all this quickly is by applying for an online accountancy tutor.

The knowledge of accounts is not only necessary for people to know the financial standing of themselves or their businesses, but also to protect themselves from fraudulent practices that may be prevalent either in the organization itself or undertaken by external individuals or companies. The United States government has created the Financial Accounting Standards Board, abbreviated as FASB in the year 1973. It is a self-financed body and works on its own accord. This board analyzes and reviews all possible accountancy related issues and frauds that have been brought to their notice. However, in order to present one’s case, the basic accounts of the aggrieved individual or organization need to be clear and for this one needs to have thorough knowledge of accountancy.

Many individuals shy away from bookkeeping and accountancy and are unwilling even to learn about the same. This is because they are living on the assumption that there are others to take care of it for them and hence, they are not required to know more about it. However, the truth is far from this, one needs to be aware of their personal income and expenses and plan accordingly for investments and even for taxation.

Contrary to popular perception, accountancy is really easy to learn and there are even online courses available for the same today. These online courses have professional tutors who are experts in the field of accountancy. They are there for one sole purpose; to assist people to understand the terms and rules of accountancy in a lucid manner without any complicated jargons or rules. Also, online courses have a number of advantages such as:

  1. One can store all of the course information that may be provided in the form of video tutorials, reference papers & notes and other material for later reference.
  2. If a person has any query, they can easily ask their online account tutor for assistance on the same and get their queries answered. They can do this either through email or even a live chat or video discussion.
  3. The courses here are highly practical and realistic. The theories and practices taught in these online courses are easy to apply in real life scenarios.

Lastly, an online course provides a convenience that no conventional courses can; the convenience of learning at your own time from any anywhere without having to visit any dedicated center for the same. This is perhaps, the biggest advantage of an online course in accountancy or any other field for that matter.