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HomeBusiness TheoryFinanceInterpreting financial information

Interpreting financial information

Photo by Karolina Grabowska:pexels

Business accounts are produced to meet the needs of their users. Typical users and the use they make of accounts are shown below:

Shareholders -to check on the quality of direction of the company, as well as profitability, solvency, the value of the company and other signs of health.

Employees – to check on job security and scope for wage and benefit increases.

Suppliers – to check that a company is generating the cash to be able to pay up.

Inland Revenue – for calculations of Corporation tax.

There are three main financial statements that are produced by company accountants. These are:

1. TheBalance Sheet sets out the financial position of the company at a particular moment in time e.g. the year-end.

2. The profit and Loss Account shows how the profit or loss of the business has been generated.

3. A cash flow statement setting out the cash inflows and outflows to the business during a particular period of time

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