Financial Statements – Definition, Uses, Contents and Templates

What are Financial Statements?

In your accounting class, you may have encountered the term business financials. It is actually another way of saying financial statements. Before you are told to do any calculating, you will be introduced to the most basics of Accounting reports which are the Financial Statements.

A financial statement is a report presenting a business’s financial position. Showing you a picture in a structured way of how a business use its funding from investors or lenders, and other projections that serves as proof of a business’s financial standing. In other words, these financial statements are a collection of structured reports showcasing a business’s financial condition and results.

 

Uses of Financial Statements

Creating financial statements are critical for businesses, especially when gathering data and calculating numerical figures. The known common reasons, significance, and uses of financial statements are the following:

  • Determining the ability of a business to yield cash, where and how they derived with the cash and how the cash will be distributed.
  • Determining whether the business is capable of paying back the liabilities incurred, not just in the present but also in the upcoming years.
  • Deriving financial ratios based on the financial statements that will show a business’s position and condition.
  • Investigating the business’s transactions and all other projections.
  • Organizing transactions and all financial projections in a readable and easy to understand way.
  • Bases for decision-making when looking for potential and profitable investments and also when looking for funding from investors or getting a loan.

Standard Contents of Financial Statements

There are thre basic contents in Financial statements – The Balance Sheet, Income Statement and Statement of Cash Flows.

Balance Sheet

This is where you’ll see the Assets, Liabilities, and Equity of the entity as of the reporting date. Meaning, the data shown is as of a specific point in time. The format of the report shows that all Assets will be equal to the total of all the Liabilities and Equity; this is what we know as the basic Accounting Equation. The balance sheet is considered as the second most element in a financial statement since it showcases the liquidity ratios and capitalization structure of a business.

Income Statement

This is where the Revenues or Sales, Expenses, and Profits or Losses presented, which is generated during the reporting period. Others call this statement as the Profit and Loss Account, which shows how it derived the net income of the business over a stated period. Basically, it projects all the business’s operations and financial activities, which is why this is considered as the most important of the financial statements since it showcases the operating results of a business.

Statement of Cash Flows

This is where all the Cash inflows and outflows caused by the business’s activities during the reporting period. All the changes of the business’s cash flows will be presented here and used to provide an in-depth explanation where cash has been generated or used (which is not visible in the income statement). To check whether if it is reflected or balanced in the amount of profit or loss reported during the stated time.  Cash flow statement basically answers the questions; where the money came from and where it went. With this statement, it will help the business assess the amount, timing and predictability of cash flows which is used for budgeting and business planning.

It is noted that when creating these basic financial statements, it is critical to add footnotes that provide more details and additional information to explain further how the business derived certain figures.

 

Financial Statement Template – Excel

In creating a business plan, financial statements are one of the most critical elements. Aside from ensuring the business’s condition, presenting the business financials will be one of the requirements needed to gather investors for more funding. Once issued for the outside users, it is critical to follow the format according to the standard accounting frameworks.

These frameworks are unique depending on which industry and what kind of business, hence, the statements will differ from the others. On the other hand, when used only internally, then following the structured and common base is enough as long as it serves its purpose – report of monthly results and ending financial condition. But, all in all, it is all preferably presented in Excel. Excel is a nifty tool for showing a systematic projection of computations and other variables in the financial statements.

All financial statements are expected to be created to report the results of a full fiscal year. Which means creating financial statements is not a one-time only thing. Some businesses hire financial experts just to create these for them but the ones who prefers to do it themselves will have to consume a lot of their time.

It is a good thing that nowadays, downloading ready-made financial statement template in Excel are offered by a lot of financial modeling platforms. These templates are made by expert and experienced finance professionals which have used these templates themselves when providing financial modeling services to different companies in different industries. The best thing about the templates is it comes with easy instructions which will help those businessmen in creating the financial statements.

Often, the reason why it takes a lot of time to prepare the financial statements, is because some doesn’t know how to create one. Hence, learning how to create from scratch will take even more time. The financial statement template excel are a heaven sent to those in need of a base to start their financial report with and also to those who wants to save time since the templates comes with an automatic calculator and other graphs or charts to support as a visual for the financial statements.

If you are interested and in need of a financial statement template in Excel, you can check our website and choose from which business industry you prefer.

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