Financial Statements

Financial Statements are the basis for analyzing the activities of any enterprise. Financial Statements are based on records of financial activities issued in accordance with accepted international or domestic standards, reflecting the financial position of a business, individual, or other financial entity. There may also be forms of internal reporting of a company that differ from mandatory reporting forms and international requirements adopted at the state level in a particular country.

The main purpose of Financial Statements in investment activities is to provide potential investors with information about the financial situation of the enterprise, demonstrate changes in it, and confirm the effectiveness of its activities.

Financial Statements usually include a number of basic components:

• Balance Sheet — assets, equity of the company, and liabilities as of the reporting date.
• Income Statement — information about the company’s profits, expenses, and income for the reporting period.
• Statement of Changes in Equity — identifies the changes in the company’s equity during the reporting period.
• Cash Flow Statement — cash flows are displayed, including operating, investing, and financing activities for the reporting period of time.

Based on Financial Statements, banks decide on the riskiness of lending to a company; government agencies use them to compile statistics; and buyers, employees, and suppliers rely on them to check the reliability of the company.

Financial Statements are divided into 2 main types according to the length of the reporting period:

• Annual financial statements are prepared once a year, usually as of December 31.
• Interim financial statements can have any frequency, most often formed at the end of each month or quarter.

Financial Statements can be issued either for internal use in an organization or for provision to other organizations. In this regard, the format of internal reporting is shaped by the needs of the enterprise and can vary greatly depending on the need for management analysis and approved accounting policies. At the same time, the format of external reporting in many countries is strictly formalized, which makes it possible to submit a single report to the tax service, statistical agencies and other regulatory authorities.

As a standard, an accounting policy must be adopted by an enterprise for proper accounting, which establishes the rules by which accounting is carried out (the procedure for writing off various expenses, methods of asset valuation).

During the preparation of Financial Statements, the following is carried out:

• Asset verification and liability reconciliation.
• Checking the trial balance to display all transactions with reconciliation of balances.
• Summarizing the results in accounting forms (balance sheet, financial results, profit, etc.)