Financial Information in an Organization (PDF)
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Abdul BasitTask 1.1Need for financial information in an organizationThere are many uses of the financial reports such as:Planning: The company will use the financial reports to plan the future of thefinancial position of the company, and control the flows and outflows of thecompany s money.Decision Making: The managers will also see the financial reports to take anydecision related to the financial area of the company and take any necessaryaction if needed.The business also uses the financial statement to measure the financial strengthof the whole company.The business will also come to know that how much tax should be paid to thegovernment.Suppliers will be needing the companies financial information to see weather thecompany is able to pay the credit or not.Assessing finance :Business and organization all around the world needs financial information or report tosee the financial position of the business in the future and see the condition of thecompany and how can it improve.Obtaining finance:The business will use the fineancial information too see that which is the appropriateway to raise finance, business can raise finance internally by selling shares or sellingstocks or externally by arranging costs.
Abdul BasitReporting to owners/ shareholders/ stakeholders :Once the business started getting the financial information they must report to thecompanies stakeholders such as shareholders and managers.Appraising new projects :The Financial information will help the companies to apprise for the new projects byshowing the employees and stakeholders how will the company manage the newproject.Managing risk:By seeing the financial information the company can avoid many risksand save many costs.Sources of Financial Finance:There are two sources of finance, which can be separated to two groups, Internalsources of finance, and External sources of finance.Internal Sources of Finance:Income Tax returns: It is a document which is given to the tax payers which is consistingof Profit and losses of the business and other deductions as well as details about thetax which is going to be paid.Press release by the company: It is news, which is published by the company about anew thing happened or happing inside the business. It maybe a product or any othermaterial news.Audit reports: It is the written opinion about entity’s financial statement .Payrolls : It is the remaining wages which should be paid by the company to theworkers.
Abdul BasitExternal Sources :The media : Media sources will be broadcasting the financial report of the company.Information from vendors : It is organization which analyze different organization to getinformation about markets.Budget announced by the companies : It is the Annual budget which is announced inthe public by the companiesFINANCIAL INFORMATION•Income statement: It shows the performance of your business over a period. Italso resets at the beginning of each new accounting period. Income statementSummarizes all revenue generated by the business and all expenses incurred bythe business, Calculates the net profit or loss, and Tells the business how wellyour business is operated.•Cash Flow statement: It is a statement which records the incoming andoutgoing cash from the business. This flows of cash can be of two types eitherinflow or outflow. In other ways, we can also can call it the statement of receiptsand payments.•Balance sheet: lt Shows a snapshot of the business at a point in time. It canalso Accumulate over the lifetime of business and Shows the net worth of thebusiness. The balance sheet always Balances ASSETS – LIABILITIES =EQUITY.•Ledger: It is a book of accounting system where different transactions arerecorded weather they are credit or debit, It is also called the book of final entry
Abdul Basitbecause the transactions are first entered in the journals and then finally postedin the ledger. It is also called the principal book of accounts.•Profit And loss account :The profit and loss account is produced by a businessto showHow much net profit has been madeHow much net loss has been madeAll the expenses for the year.Net profit or loss for the financial year is calculated as follows:Gross profit –Expenses = Net profit or loss.The profit and loss account is presented in a verticalformat.Purpose and Requirements of Financial Reports :Legal requirements: In some cases if there is conflicts between the customersand company the government will be requiring the Financial reports to see theproblem.Tax requirements: The tax authorities in every country will require the financialreports that the company will generate because they want to know how muchprofit did the company make and how much tax should the company pay to thegovernment.Internal control requirements:The company management needs to keeprecords financial reports to see that the cash inflow and outflow are going welland keep an eye on the cash liquidation in the company and keeping the interestof the stakeholders and see that the company is making enough profits in orderto maintain all this aspects the management should keep continues record offinancial reports.Limitations of Financial Reports: