financial reporting assignment

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Financial Accounting and Reporting Classroom Materials

Financial Accounting and Reporting is an important part of the accounting curriculum. The skills students learn in your classroom will not only prepare them for more advanced courses, but to one day succeed in a career.  The below are supplemental curriculum resources that the AICPA Academics team have reviewed and think can be used in the classroom.

Award-Winning Curricula

The Academics team is proud to offer award-winning curricula designed to encourage faculty and expand the knowledge of accounting students. The curricula below is from the  Accounting Professors Curriculum Resource tool  and has been recognized for excellence with the  Bea Sanders/AICPA Innovation and Teaching Award , the  George Krull/Grant Thornton AAA Innovation in Junior and Senior-Level Teaching Award,  or the  Mark Chain/FSA Innovation in Graduate Teaching Award . 

• A Better Way to Teach Effective Interest Method Related Problems in Accounting   This resource presents a simpler method of teach accounting problems involving the use of the effective interest method. The method stimulates student interest by focusing on the economics of the transaction and relating it to real-life examples.
• Accounting in the Headlines: A News Blog for the Introductory Accounting Classroom   This resource shares Wendy Tietz's "Accounting in the Headlines" blog in which she writes stories about real-life companies and events that can be used in the accounting classroom to illustrate introductory financial and managerial accounting concepts.
• Accounting Challenge (ACE): Mobile-Gaming App for Learning Accounting Accounting Challenge is the first mobile-gaming app for teaching financial accounting. ACE aims to enhance learning of accounting outside the classroom by engaging students to play and learn accounting on the go.  
• A FASB Accounting Standards Codification Project for Introductory Financial Accounting   This exercise is designed as a team project in which introductory accounting students act as a consultants to a client seeking guidance on issues surrounding a start-up venture. Students must access and cite the Codification as the basis for the materials they submit in fulfillment of the project requirements.
• Attracting the Best and Brightest to Accounting: Establishing an Honors Accounting Course   This resource presents one school's approach to attracting and recruiting the best and brightest students toward accounting by offering an honors accounting course.
• Beyond Debits and Credits... Service Learning in Accounting   This resource presents a service learning project implemented in two accounting courses to enhance student skills in communication and teamwork.
• Business From the Idea to the Seasoned Offering: Accounting and Financial Statements Reflecting Business Activities   This project takes accounting education from bookkeeping to holistic active business learning including how financial statements build to reflect the business.
• Chocolate: Accounting as a First year Seminar   This resource provides a thematic approach at combining first year seminars and accounting programs using student activities that are simultaneously engaging and assessable.
• Creative Strategies for Teaching MBA Level Accounting   This resource presents a new concept for teaching accounting to MBA level students. At its heart, accounting centers on measurement of historical transactions or the measurement of future opportunities. this course turns the focus from rules, to the tools leaders need to manage a complex organization.
• Cultivating Deep Learning in the Principles of Accounting Classes through Philanthropy-Based Education   This philanthropy project goes beyond service learning or volunteerism. Students make real decisions that have immediate impacts on their community. Students award funding to not-for-profit agencies based on a competitive proposal process.
• Digital Storytelling for Engaged Student Learning   This resource uses digital story telling, a movie, to enhance students' technical competence in accounting. The story uses 12 episodes to follow three young business graduates who started their own business and discover along the way the role of financial information in managing a business venture.
• FASB Accounting Standards Codification: Student-Authored Research Exercises   This resource is based on the notion that the best way to learn something is to teach it. Students in a financial accounting graduate class demonstrate their master of GAAP research skills by creating research assignments using the FASB Accounting Standards Codification.
• Forming Groups in the Age of YouTube   This resource uses a variation of speed dating as a means for forming groups in an introductory accounting class. By learning more about their classmates prior to self-selecting a group this method allows students to choose better groups.
• Getting Started in the Throughbred Horse Business: A Review of Some Basic Accounting Principles   This resource provides reinforcement of common accrual accounting concepts centered on the breeding and racing operations of a small thoroughbred horse business. This curriculum is appropriate to use after students have been exposed to fixed assets, inventory, profit and loss and cash flow reporting.
• IFRS Immersion   This resource provides instructions for teaching an IFRS course from the standpoint of foreign companies that have already dealt with the problems and issues associated with converting from local GAAP to international GAAP.
• IFRS Projects Using Dual Reporting of IFRS and U.S. GAAP   This resource illustrates integrating IFRS learning into financial accounting curricula by incorporating valuable contrasting information from the dual reporting.
• Integrated Accounting Principles: A New Approach to Traditional Accounting Principles Courses   This resource describes an integrated accounting principles course that combines traditional financial and managerial accounting courses into a single six hour course.
• Introducing Freshmen Students in the Accounting/Finance Course to the Library   This resource describes a series of online, interactive tutorials and quizzes to help students learn fundamental concepts and skills of company and industry related research.
• Introduction to Financial Accounting Case Project: Arctic Blast Ice Cream Store   This case provides an opportunity for students to apply accounting concepts to a simple business venture. The project lasts 4-6 weeks and covers three distinct phases of the management process: business decision making, performance and evaluation.
• Let's Go to the Movies: Using Movies as an Ethics Assignment   This project involves students watching a series of predetermined movies and noting the ethical dilemma. At the end of the semester each student must defend one of the movies as a nominee for "A Must See Ethics Movie" for accounting/business students.
• Mini-responsibility Centers: A Strategy for Learning by Leading   This resource explains the concept of using mini-responsibility centers (MRCs) to decentralize large financial, managerial and cost accounting courses. In return the students are more focused and engaged.
• Modeling Uncertainty in C-V-P Assignments: Going Beyond the Basics!   This resource provides an outline for using the Monte Carlo Simulation to offer graduate students an opportunity to rapidly come to insights about probabilistic model building and interpretation. The simulation combines quantitative skills and qualitative skills along with reports and presentations.
• Northwind Data Query Exercise   This project encourages students to consider the evolution of data sources for financial reporting and evaluate how to acquire and manipulate information in this emerging business reality; by actually practicing queries and exporting information to worksheets.
• Reinventing Student Engagement and Collaboration within Introductory Accounting Courses   This resource provides ideas for increasing engagement and collaboration in the introductory accounting class. Examples include student projects, flipped classroom applications and in-class problems.
• Responsibilities and Choices: An Active Engagement Exercise for Introductory Accounting Courses   This exercise provides students with an opportunity to perform a basic due diligence task, complete a relatively simple working paper to document their work and make a decision. The exercise has embedded moral temptation and ethical issues and examines ethical choices that students make in the presence of time pressure and reward structures that encourage aggressive performance.
• TeachingIFRS.com   This document provides information on TeachingIFRS.com which was created  in response to the rapid growth of IFRS and lack of high quality and effective teaching resources. The site consolidates and provides links to numerous freely available IFRS pedagogical materials.
• Testing Critical Thinking Skills in Accounting Principles   This resource describes a method for testing critical thinking skills in an accounting principles course. Using this method, each testing period is divided into two parts. First, students complete an individual traditional test. The second part is a critical thinking exercise called "the challenge problem".
• The Accounting Profession Post Sarbanes-Oxley: An Approach to Impart Knowledge About the Conceptual Framework and Attract Students to the Accounting Major   This document provides the description of a program entitled "The Accounting Profession Post Sarbanes-Oxley". The program provides students with an opportunity to better understand important elements of the conceptual framework. It also provides an overview of the career opportunities in accounting.
• The Accounting Tournament - March Madness in Financial Accounting   This resource describes implementation of an end of year comprehensive review using brackets as a model. Students are randomly placed in the bracket and compete against each other for extra credit points.
• The Amazing Accounting Race: An Introductory Accounting Semester Project   This project engages students with an exciting internet race around the professional world of accounting. Students obtain clues to complete tasks, encounter detours, road blocks and fast forwards. The assignments utilize students' synthesis skills and computer application skills as they collect facts about accounting careers from the internet and assemble data in an organized format.
• The College to Professional Experience   This resource outlines a program that serves to better prepare students for the "real world" by changing the perception of education from "learning by doing" to "doing and making to learn with technology". The project aims to move beyond traditional models of education to leverage technology to facilitate new methods of delivery and understanding.
• The Farming Game and the Introductory Financial Accounting Course: An Accounting Simulation   The Farming Game enables students to develop many of the skill-based competencies needed by students entering the accounting profession, regardless of career path. The Game provides experiential learning of various accounting principles. It is a learning opportunity that offers students a degree of reality and a larger view of the system.
• Understand FX Risk by Playing Monopoly   This resource uses a short version of Monopoly to understand the FX risk impact on net income.
• Back to the Future: Using Accounting History to Explore Professional Opportunities   In this project students read an article about a period of time in accounting history and present their findings to the class in a video format. Students then tie what they have learned in the presentations to the field of accounting today as well as the future.
• From Pacioli to Picasso: Using Art to Enhance Critical Thinking in Accounting Capstone Courses   This resource outlines using name cards, picture drawings and classic artwork to help students enhance their critical thinking skills. The exercise sets the tone for a course that requires them to think about more than rules and regulations and instead delve into the "why" and "what could be."
• Digging Deep: Using Forensic Analytics as a Context to Teach Microsoft Excel and Access   This resource describes a graduate level case that focuses on the development of technology skills through the lens of forensic analysis.
• Who Moved My Classroom? Community Linked Learning and Assessment   This resource describes three exercises that expand learning beyond the classroom. The first exercise allows students to discover the linkage between classroom studies and what practitioners do in the "real world". The second allows students to apply the COSO model to internal controls. The third requires students to interpret financial statements for a friend.

Additional Materials

Here are additional materials we reviewed and think are useful to incorporate into the classroom.

• IIRC Database of Research on Integrated Reporting The International Integrated Reporting Council (IIRC) launched the <IR> Academic Database, a searchable collection of more than 200 articles, books, chapters, dissertations, and other pieces of scholarly research on the advancement, adoption, and practice of integrated reporting. 
• A destination is only as good as its compass. The new  My 360  is here to help you create a free plan personalized to your financial needs by helping guide you through all the resources 360 Degrees of Financial Literacy has to offer.

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Australian accounting standards - Financial Reporting Assignment Sample

Instructions for the report AASB 9 (and IFRS 9) Financial Instruments was initially released in December 2014, but it will become effective from financial reporting periods beginning on or after January 1, 2018. This will bring fundamental change to financial instrument accounting when it replaces the existing accounting standard: AASB 139 (IAS 139) Financial Instruments: Recognition and Measurement. Entities reporting financial instruments will need to make several decisions and choices in relation to the transition to the new standard. Many businesses, especially banks and other financial institutions, will be affected by the implementation of the new standard. You can find more information regarding some changes made by the new accounting standard in 2018 and industry impact for various entities from the following links: https://www.pwc.com.au/ifrs/new-standard-financial-instruments.html https://nexia.com.au/news/accounting/aasb-9-financial-instruments-understanding-the basics.

This task requires you to prepare a report to evaluate and comment on information regarding financial instruments provided in the annual report of a company listed on the Australian Stock Exchange (ASX). Your comments or evaluation should comply with the requirements of relevant Australian accounting standards (AASBs)

• Discuss the recognition for financial instruments including financial asset, financial liabilities and equity instruments according to relevant AASBs.
• Discuss the measurement of finical instruments according to related to relevant AASBs.
• Identify different types of financial instruments available in the chosen company. Provide at least one example of each type of financial instrument available in the chosen company and specify recognition and measurement of that financial instrument.

Part B From the perspective of the investors, discuss the potential impact of the adoption of new AASB 9 on assets, liabilities, financial performance and one of selected financial ratios (such as debt/equity ratio) of the chosen company.

Executive Summary The increased globalization and cross-border business relations have made it mandatory for the financial reports of different countries to communicate a similar language. This is achieved through the convergence to IFRS which makes interpretation of financial statements easier and more apt to suit the business requirements. With the effective implementation of the IFRS, entities could have significant changes in their financial reporting. Its implementation is not just restricted to equity instruments or such other long terms loans and receivables but can extend to a few items on the profit and loss account also. This report discusses the financial instruments concepts that are in tune with the IFRS with practical examples from the annual report of a listed company.

Financial instrument recognition IFRS 9 specifies an entity’s classification and its measurement. Further it relates to financial asset or financial liability and other contracts to buy or sell non-financial items. IFRS 9 allows an entity to account for an asset or liability of financial type only when it has become a party to the contract in accordance with the contractual provisions affected by the relevant instruments. At the prior stage, the financial asset recognition and financial liability is made at the fair value with an addition of the costs of transaction that are incurred to acquire the asset or issue the liability. Hence, it is imperative that the recognition should happen at the time when the entity links to obligations of contractual nature, unlike the other IFRS where the emphasis is laid on the future economic benefits (Horton & Serafeim, 2010).

Derecognition of financial asset or removal happens from the financial statements when the expiry happens from that of contractual rights or cash flows or when there is a transfer of the entity and such a transfer leads to the qualification for derecognition (Deegan, 2005).

Derecognition of a financial liability happens when it gets extinguished or in other words, its obligations are discharged or canceled or expires.

1. Measurement of financial instruments according to the relevant AASBs.

Financial Assets : Every entity is expected to follow a business model to manage its financial assets and the cash flows of contractual nature arising and flowing from the assets. Based on this business model, the financial asset recognition is made according to the following criteria:

• Amortized Cost: The financial asset recognition is done at the cost of amortization only if both the conditions listed below are met:
• The asset is held by the entity for the purpose of collection of cash flows of contractual nature and the entity aim is to hold the assets for business purposes.
• Due to the possession of the financial asset, cash flow arises that are solely payments of principal and interest amounts outstanding on the assets (Landsman et. al, 2011)
• FV from a different comprehensive income: In a business model when the aim of holding financial assets is both for the generation of cash flows and for selling financial assets, the classification happens through fair value through income of comprehensive nature (IFRS, 2016). IFRS 9 also provides guidance on whether the business model is meant for managing the assets or for the contractual cash flows or collection of both.
• FV through P/L: If the recognition of financial assets is not done in any of the above two methods, then the financial assets are recognized at FV through P/L. IFRS 9 states that when the business model changes, then a reclassification of all the financial assets has to be done.

Financial Liabilities: Financial liabilities are ascertained in the following ways:

• At FV through PL: The financial liabilities that are not ascertained at amortized cost fall in this category like derivative instruments, other financial liabilities for trading and such liabilities that the entity has specifically classified to be evaluated at the concept (Lai et. al, 2013).
• At cost of Amortization: All financial liabilities are evaluated at amortized cost leaving those measured at fair value through profit and loss (Maria, 2016).

Equity Instruments: IFRS 9 states that the measurement of equity instruments has to be done at FV. The changes in the equity instruments have to be recognized in the P/L account. The exception being for the equity instruments that the entity has opted to present the variances in the comprehensive income.

IFRS 9 provides the option to designate the instrument of equity at FV through other comprehensive income and this option can opt at the initial time. It is an irrevocable option. This classification will result in all the gains and losses being presented under the other comprehensive income except the dividend income which is seen in the income statement.

IFRS 9 even projects way on when the cost might is feasible for FV and when should not be used for fair value.

Thus these are the measurement criteria laid down in IFRS 9.

2. Different types of financial instruments available in ARB Corporation Limited The company selected for discussion and analysis is ARB Corporation Limited. It deals with the manufacture, design, and other engineering matter related to motor vehicles.

The performance of the company has been pretty good and in a growing phase. The revenue, profits, and dividends have all seen a steady increase. It needs to be noted that the companies demand for the products are healthy. It is thus well poised for a long-term business growth (ARB Corporation, 2017).

The financial statements notes contain the details and explanations about the financial assets, financial liabilities, and equity. The below has been extracted from the same. The derivatives that are designated as effective hedging instruments are forward exchange contracts and these are carried at fair values (ARB Corporation, 2017).

• Derivative Financial Instruments are classified under Current Assets. Example – Loans & Receivables Recognition – These financial assets are recognized when the company enters into a contract and the other party is under an obligation and also bound by the performance of the contact. Measurement – These assets are ascertained at the fair value at inception. The subsequent measurement is at the cost of amortization utilizing the method of interest rate. It is tested for impairment at the date of reporting and any impairment gain or loss is recognized in the profit and loss account (ARB Corporation, 2017).
• Derivative financial instruments are classified under current liabilities. Recognition – On similar lines as a financial asset, financial liabilities are recognized upon entering into contractual obligations where both the parties agree to undertake their obligations (Hanlon et. al, 2014).
• Measurement – The financial liabilities mentioned above from third parties are measured at the amortized cost since these are fixed sums of liabilities and do not alter with time (ARB Corporation, 2017). Hence fair value measurement is not adopted for these liabilities. The amortized cost is checked for on the reporting date and the amount of liability outstanding is disclosed in the statement.
• Consolidated statement of changes in equity presents the movements and profit or loss made by the company. Retained Earnings recognize and take into account the movements in FV of cash flow hedges, net of tax (Goodwin, 2008).

Example – Cash Flow Hedges Recognition – There are derivatives of specific nature that are allotted to be instruments of hedging and such derivatives are recognized as Cash flow hedges. For classification under this category of cash flow hedge, the items that generate the cash flows should be realistic (Hanlon et. al, 2014).

Measurement – The changes in the FV of the derivatives on the reporting date are recognized under the equity account in a reserve of hedging of cash flow. The profit or loss arising is passed on to the Income Statement during the same period when such transactions occur, thus mitigating the chances of fluctuations of exchange rate that would have occurred when hedging is not present (Goodwin, 2008).

Part B As the adoption of IFRS is at a phased stage, there are a few standards that are currently in force and being adopted by the company whereas the other IFRS are not currently to be mandatorily followed but available for early adoption by the company (Byard, 2011).

As IFRS 9 simplifies the approach towards the financial assets and liabilities classification and measurement in comparison to AASB 139, there could be a change in the recognition, classification, and measurement of financial assets when the standard is adopted (ARB Corporation, 2017). The change is due to the fact that the standard allows the provision of the fair value of gains or losses in income of comprehensive nature that are not held for trading. This would be the impact of the change in the financial assets recognition and measurement (Byard et. al, 2011).

As per the needs of IFRS 9, the financial liabilities accounting that are provided at FV through PL will only be influenced. Hence no influence will be there on the accounting for entity’s for financial liabilities (ARB Corporation, 2017).

With reference to the cash flow hedge, the requirements of IFRS 9 state that a new model has to be developed which is deeply aligned with the risk management and application will be easy. The implementation cost will be reduced but the model requires extended disclosures. Thus the impact of this new hedge accounting model is yet to be assessed by the company as it is applicable from 1 January 2018.

Out of the items discussed above, financial assets like loans and receivables will not be influenced by IFRS 9. Financial liabilities like trade payables, other creditors and liabilities will also not undergo a significant change in the adoption of IFRS 9 (ARB Corporation, 2017).

The debt-equity ratio of the company is currently Nil as the company is not having borrowings as per the statement of financial position.

Hence another ratio is discussed which is a return on equity which is currently 18.83. Upon adoption of IFRS 9, it is possible that due to the recognition of the financial assets and liabilities which are to be concerned at FV through P/L account, the net profits of the company might increase or decrease (ARB Corporation, 2017). This increase or decrease is largely dependent upon the measurement of fair value which is a result of the overall market conditions on the reporting date. Hence the ratio will accordingly increase or decrease.

Conclusion The significance of IFRS 9 is thus seen in terms of recognition and measurement of financial assets, financial liabilities, and equity. The accounting and disclosure for cash flow hedge is the only item that will require more efforts in terms of the development of a model and extended disclosures. From the investor perspective, it would be evident that the adoption of IFRS 9 will bring the financial statements closer to the current market scenario. Most of the items that were being shown at the current or historical cost figures will now be disclosed at fair values and hence the profitability of the company can either increase or decrease. It will also not facilitate one on one comparison with the prior year figures due to the changed recognition and measurement criteria.

References ARB Corporation. (2017). ARB Corporation Annual report and accounts 2017. Retrieved from: http://www.annualreports.com/Company/ARB-Corporation-Limited [Accessed 25 May 2018]

Byard, D, Li, Y, & Yu, Y. (2011). The effect of mandatory IFRS adoption on financial analysts’ information environment. Journal of Accounting Research, 49(1), 69-96.

Deegan, C. (2005). Australian Financial Accounting. McGraw Hill, Sydney.

Goodwin, J, Ahmed, K & Heaney, R. (2008). The Effects of International Financial Reporting Standards on the Accounts and Accounting Quality of Australian Firms: A Retrospective Study. Journal of Contemporary Accounting & Economics, 4(2), 89-119.

Goodwin, J. & Ahmed, K. (2006). The Impact of International Financial Reporting Standards: Does Size Matter?. Managerial Auditing Journal, 21(5), .460- 475.

Hanlon, D., F. Navissi & G. Soepriyanto (2014). The value relevance of deferred tax attributed to asset revaluations. Journal of Contemporary Accounting & Economics, 10(2): 87-99.

Horton, J. & Serafeim, G. (2010). Market reaction to and valuation of IFRS reconciliation adjustments: first evidence from the UK. Review of Accounting Studies, 15(4): 725-751.

IFRS. (2016). IFRS Application around the world jurisdictional profile. Retrieved from: http://www.ifrs.org/Use-around-the-world/Documents/Jurisdiction-profiles/Australia-IFRS-Profile.pdf [Accessed 25 May 2018]

Lai, C., Lu, M & Shan, Y. (2013).Has Australian financial reporting become more conservative over time?. Accounting & Finance, 53, 731-761.

Landsman, W. R, Maydew, E. L & Thornock, J. R. (2011). The information content of annual earnings announcements and mandatory adoption of IFRS. Journal of Accounting and Economics, 53(2), 34-54.

Maria, W. (2016). The Big Consequences of IFRS: How and When Does the Adoption of IFRS Benefit Global Accounting Firms?. The Accounting Review , 91(4), 1257-1283

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• Introduction to Financial Accounting

(4 reviews)

David Annand, Athabasca University

Henry Dauderis

Copyright Year: 2017

Last Update: 2021

Publisher: Lyryx

Language: English

Formats Available

Conditions of use.

Learn more about reviews.

Reviewed by Katheryn Zielinski, Assistant Professor, Minnesota State University Mankato on 6/14/23

The text reading follows typical financial accounting flow. Beginning with the foundational introduction to what accounting is through the full accounting cycle, while including financial statement analysis towards the end of the book. Students... read more

Comprehensiveness rating: 5 see less

The text reading follows typical financial accounting flow. Beginning with the foundational introduction to what accounting is through the full accounting cycle, while including financial statement analysis towards the end of the book. Students will find the format helpful; the voice is student-friendly. There is online homework help for students. Instructors will find the text format friendly to semester-long class as concepts broken down into 13 chapters. The chapters explain the learning outcomes, use examples to express concepts, with chapter summary at end. The topics included are consistent with intro accounting courses.

Content Accuracy rating: 5

No issues noticed with accuracy. The text includes accurate financial accounting information.

Relevance/Longevity rating: 5

For an introductory accounting class with focus on US the concepts covered are typical.

Clarity rating: 5

The content is presented in a student friendly manner. Answers are provided. The extra information is helpful for students wanting extra practice.

Consistency rating: 5

The format and layout of the book chapters are consistent. All users will quickly understand the format as it is applied the same to each chapter. This helps provide consistency for students learning introductory accounting.

Modularity rating: 5

The content within the chapters can be broken-down and assigned as instructor plans for the course length. The manner is which the material is presented flows easily as reading.

Organization/Structure/Flow rating: 5

The text organization is consistent and coherent. Each chapter is presented in same manner.

Interface rating: 5

No observed tech issues. PDF downloaded and used with ease.

Grammatical Errors rating: 5

No grammar or language issues.

Cultural Relevance rating: 5

No cultural insensitive or offensive context noted.

This is a student friendly text. However, students might find a glossary helpful, as well as an index.

Reviewed by Lawrence Overlan, Part-time Professor, Bunker Hill Community College on 6/4/20

I appreciate how the Statement of Cash Flows has a separate chapter towards the end of the book. Might be better to wait until that chapter instead of also discussing it in Chapter One.....lots of material for opening week.... read more

Comprehensiveness rating: 4 see less

I appreciate how the Statement of Cash Flows has a separate chapter towards the end of the book. Might be better to wait until that chapter instead of also discussing it in Chapter One.....lots of material for opening week....

I sampled several problems...all correct.

Hard to make accounting obsolete. All the required material is present.

Problems are presented clearly and with good font size. Excellent color schemes and graphics.

Yes....no problems detected in this area. Very straightforward.

Chapters contain the right amount of content. Not too long with out breakup diagrams or examples etc.

Standard flow of chapters with excellent subdivisions.

To the contrary, the graphics and flow charts break up the material very nicely.

No issues noticed in this area.

Nice work! I will definitely consider adopting.

Reviewed by Patty Goedl, Associate Professor, University of Cincinnati Clermont College on 3/27/18

The text covers all of the topics normally found in an introductory financial accounting (principles of accounting I) text. The table of contents essentially mirrors the table of contents found in the leading texts in this field. I like that... read more

The text covers all of the topics normally found in an introductory financial accounting (principles of accounting I) text. The table of contents essentially mirrors the table of contents found in the leading texts in this field. I like that this text also covers the classified balance sheet, financial disclosures and partnerships.

Content is error-free, accurate, and unbiased.

Relevance/Longevity rating: 4

The content is up-to-date. Introductory accounting does not change often so future updates should be minimal. The authors used the year 2015 in most of the problem and examples. This might make the text "seem" out-of-date in a few years.

The book is clear and concise. The topics are clearly explained and the technical terminology is appropriate for an introductory level.

The writing, style, and formatting are consistent throughout this text.

The text is divided into topical chapters, which is appropriate considering that the concepts build on each other. The chapters are further subdivided into sub-topics. This makes it easy for an instructor to pick which sub-topics to cover.

Excellent organization and flow. The concepts logically build upon each other and the material is presented in a clear fashion.

The HTML interface is excellent. The book has good graphics, end of chapter content, and even video examples.

I did not notice grammatical errors.

The text is not culturally insensitive or offensive in any way

Excellent book that is comparable to any of the leading financial accounting titles. The authors even provide end of chapter problems, videos, and interactive Excel problems for students. Overall, a great resource! I commend the authors for making something of this caliber freely available.

Reviewed by Margarita Maria Lenk, Associate Professor, Colorado State University on 1/7/16

The content of this textbook matches the content and organization of most introductory financial accounting textbooks. It is written by Canadian authors, but is relevant to US students. The text begins by explaining the role of financial... read more

The content of this textbook matches the content and organization of most introductory financial accounting textbooks. It is written by Canadian authors, but is relevant to US students. The text begins by explaining the role of financial accounting in society, and then describes the underlying structure of double entry accounting systems and the process of recording economic events that impact the value of the organization through the journals and the ledger. The records of these events are then summarized into the primary financial statements. The numeric subtotals and totals on these statements are used to calculate standard financial measures and ratios used to evaluate the organization's performance. The text's organization then proceeds sequentially through the balance sheet accounts, explaining in more detail how the accounting for each category of economic value is recorded and reported. The author's decision to move the most complex content to the end of the book matches how most faculty choose to organize their coverage of these topics.

My reviewed resulted in highest marks regarding accuracy. The only possible concern I would mention here is that the authors use a commonly used technique in chapter two which sometimes leads to students misunderstanding that revenues and expenses are not part of owners' equity until the revenues and expenses are closed at year end to retained earnings. It is my preference to teach introductory students that revenues and expenses are distinct and separate from equity, and then explain that revenues and expenses ultimately get closed to equity. So, this is not an inaccuracy by the authors, just a point that some instructors may want to know before adopting the textbook.

It is my opinion that the content of this textbook will be relevant and current for at least a decade. Any changes made to accounting principles, Canadian or International, will be very easy and straightforward to update.

It is my opinion that the clarity of this text is very high. The authors are succinct and use visuals often to highlight the theoretical structures.

This test is very consistent with the framework that is set up by the authors in the beginning of the text.

The textbook is very clearly divided into separable modules, making it easy for both students to read and for instructors to choose which modules to include in their course.

The content of this textbook matches the content and organization of most introductory financial accounting textbooks. It begins by explaining the role of financial accounting in society, and then describes the underlying structure of double entry accounting systems and the process of recording economic events that impact the value of the organization through the journals and the ledger. The records of these events are then summarized into the primary financial statements. The numeric subtotals and totals on these statements are used to calculate standard financial measures and ratios used to evaluate the organization's performance. The text's organization then proceeds sequentially through the balance sheet accounts, explaining in more detail how the accounting for each category of economic value is recorded and reported. The author's decision to move the most complex content to the end of the book matches how most faculty choose to organize their coverage of these topics.

The online text worked perfectly in my Chrome browser. The end of chapter exercises and problems are perfectly formatted on the screen. All assessment materials (quizzes, exams, etc.) are located on a different site that requires registration to have access.

I found the grammar to be very clear, concise and very effective. Because the book is written by Canadians, expenses are sometimes referred to as revenue expenditures, which does not match how US textbooks refer to expenses, but is perhaps a better learning tool, as the expenses are always recorded in the period in which they match the revenue generation, so I support the authors' choices regarding how they refer to the difference between assets (capital expenditures) and expenses (revenue expenditures).

The textbook adequately refers to the international accounting standards. That is the only cultural relevance which is relevant to introductory financial accounting.

I found this textbook and its exercises to be a useful teaching and learning tool. Instructors and students have access to pre-made PowerPoint slides, exercises and problems, and there is the option to enrol in an online service for online assessments, which seem to have student feedback capabilities in addition to assessment gathering capabilities.

Table of Contents

• The Accounting Process
• Financial Accounting and Adjusting Entries
• The Classified Balance Sheet and Related Disclosures
• Accounting for the Sale of Goods
• Assigning Costs to Merchandise
• Cash and Receivables
• Long-lived Assets
• Debt Financing: Current and Long-term Liabilities
• Equity Financing
• The Statement of Cash Flows
• Financial Statement Analysis
• Proprietorships and Partnerships

Ancillary Material

About the book.

This textbook is an adaptation by Athabasca University of the original text written by D. Annand and H. Dauderis. It is intended for use in entry-level college and university courses in financial accounting. A corporate approach is utilized consistently throughout the book.

The adapted textbook includes multiple ancillary student and instructor resources. Student aids include solutions to all end-of-chapter questions and problems, and randomly-generated spreadsheet problems that cover key concepts of each chapter. These provide unlimited practice and feedback for students. Instructor aids include an exam bank, lecture slides, and a comprehensive end-of-term case assignment. This requires students to prepare 18 different year-end adjusting entries and all four types of financial statements, and to calculate and analyze 16 different financial statement ratios. Unique versions can be created for any number of individual students or groups. Tailored solutions are provided for instructors.

The original Annand/Dauderis version of the textbook including .docx files and ancillary material remains available upon request to D. Annand ([email protected]).

About the Contributors

David Annand, EdD, MBA, CA, is a Professor of Accounting in the Faculty of Business at Athabasca University. His research interests include the educational applications of computer-based instruction and computer mediated communications to distance learning, the effects of online learning on the organization of distance-based universities, and the experiences of instructors in graduate-level computer conferences.

David completed his Doctorate in Education in 1998. His thesis deals with the experiences of instructors in graduate-level computer conferences.

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The Importance Of Financial Reporting And Analysis: Your Essential Guide

Table of Contents

1) What Is Financial Reporting?

2) Why Is Financial Reporting Important?

3) The Benefits Of Financial Reporting

4) Who Uses Financial Reporting And Analysis?

5) 5 Use-Cases For Financial Reporting

6) Different Ways Of Financial Reporting 

7) Common Types Of Financial Reporting

8) Key Elements Of Financial Reporting Systems

9) Financial Reporting And Analysis Trends

While you may already know that a detailed business financial reporting process is important (mainly because it’s a legal requirement in most countries), you may not understand its untapped power and potential. In fact, financial analysis is one of the bedrocks of modern businesses. It offers insight that helps companies remain compliant while streamlining their income or expenditure-centric initiatives.

Utilizing finances data with the help of online data analysis allows you to not only share vital information internally and externally but also leverage metrics or insights to make significant improvements to the area that helps your business flow.

To help you unlock the potential of financial analysis and reporting, we’ve produced this guide to tell you everything you need to know about the topic. Let’s hit it off with a detailed definition. 

What Is Financial Reporting And Analysis?

Financial reporting and analysis is the process of collecting and tracking data on a company’s finances on a monthly, quarterly, or yearly basis. Businesses use them to inform their strategic decisions, gain new investors, and comply with tax regulations.

Each of these financial KPIs is incredibly important because they demonstrate a company's overall ‘health’ – at least when it comes to the small matter of money. These types of KPI reports don’t offer much insight into a company’s culture or management structure, but they are vital to success, nonetheless.

As we continue, we’ll explore financial company analysis use cases. But first, it’s worth noting that these reports are crucial for anyone looking to make informed decisions about their business. Financial reporting software and BI reporting tools offer invaluable information on investments, credit extensions, cash flow, and so on. It is also legally required for tax purposes.

That said, various types of financial reporting and analysis can serve different purposes. Some of the most common ones include: 

• Income Statement : Also known as profit and loss, an income statement is a financial analysis report that shows the company’s income and expenses over a given period with a focus on four key elements: revenue, expenses, gains, and losses. The main goal of this statement is to understand if the business is making money or not. It does this by summarizing key sales activities, costs of production, and any other operational expenses during an accounting period. The report subtracts the revenue from all expenses to understand how much profit (or loss) the business had. 
• Balance Sheet: It provides a detailed overview of a company's assets, liabilities, and stockholders’ equity. Essentially, a balance sheet summarizes the business’s economic health at a given point, usually monthly or quarterly, and can be used for internal or external purposes. On the one hand, it can be reviewed internally by any stakeholder, such as managers or employees, to understand if the company is going in the right direction. On the other hand, anyone interested in investing can use a balance sheet externally, as the report provides useful information about the available resources and how they were financed. 
• Cash Flow Statement: In simple words, a cash flow statement shows the amount of cash the company generates and the costs for which the cash is being spent. It contains elements of the income statement and the balance sheet, making it critical to successfully managing a business. A cash flow statement is usually divided into 3 different areas that classify all the cash received and paid. First, we see the operating cash flow, which shows revenue, expenses, gains, and losses, and then we have the investing one, which shows the cash from debt and equity purchases and sales. Lastly, we have the financial one, which reports on long-term liabilities such as loan payments and equity items such as the sales of company stock. 
• Statement of shareholder equity: As its name suggests, this report shows the changes in shareholders' equity from the beginning to the end of an observed accounting period, typically a year. It gives investors transparency regarding their equity, how it is fluctuating, and what business activities are responsible for those changes. It does this by calculating the difference between the company’s assets and liabilities, constituting a key part of a balance sheet. However, big corporations might generate it as a separate statement. The statement of shareholders' equity is usually composed of the following elements: preferred and common stock, treasury stock, additional paid-up capital, retained earnings, and unrealized gains and losses, among other things. 
• Statement of retained earnings: Connected to the previous report type, the statement of retained earnings shows the accumulated profit of a business after net income has been summed and dividends paid to shareholders. It shows how much earnings a company has made during an observed period and helps owners and decision-makers assess the business's financial situation and evaluate potential reinvestments or growth opportunities based on the retained earnings left for the coming accounting period. It can be generated as a part of a balance sheet, income statement, or separate document. 
• ESG reporting: ESG stands for environmental, social, and governance reports. This reporting type has become increasingly popular now that legislators, societal expectations, and investors are turning their attention to the environmental impact of businesses, pressuring them to be transparent about the climate impact of their activities and operations. Because of this growing interest, ESG factors are now considered indicators of a company's long-term success; investors and key stakeholders request that these factors be included in the company's statements. That said, a well-constructed ESG report should include environmental performance metrics such as energy use, greenhouse gas emissions, water usage, and waste generated, social metrics such as labor practices, human rights impact, and diversity efforts, and lastly, governance metrics such as regulatory compliance, board structure, and political contributions, among others. This is especially important now that sustainable technology is considered amongst the biggest growing technology trends of 2024.

Whatever your company’s goals are, with the right analytical approach, you can significantly accelerate the growth of your business. In this post, we will see the power of financial analysis and reporting in detail, look at real-world finance reporting examples, and discuss why this approach should be vital to every modern business strategy.

Now that we’ve explored what we consider a good definition of corporate financial reporting, let’s glance at the importance of these kinds of reports.

Why Is Financial Reporting Important?

A report from McKinsey suggests that leveraging data to create more proficient marketing reports and to make more informed decisions can boost marketing productivity by 15 to 20%, which translates to as much as $200 billion based on the average annual global marketing spend of $1 trillion per year .

If you apply that same logic to the finance sector or department, it’s clear that reporting tools could benefit your business by giving you a more informed snapshot of your activities.

Financial reports offer a wealth of insight that can streamline your business’s fiscal activities. To illustrate the importance of this process further, let’s break these ten primary reasons for corporate financial reporting down into more detail.

1) For taxes

You may have heard the phrase: the only two certainties in this world are death and taxes (or something similar).

That said, taxes are arguably the biggest reason for the importance of financial statement analysis – basically, you have to do it! The government utilizes such reports to ensure you pay your fair share of taxes. If financial reports weren’t legally required, most companies would probably use management dashboards instead (at least for internal decision-making purposes).

The government’s requirements for these documents have created an entire industry of auditing firms (like the “Big 4” of KPMG, Ernst & Young, Deloitte, and PWC, among others) that exist to review companies’ financial reports independently. This auditing process is also a legal requirement.

2) For other companies, investors, shareholders, etc.

If you’re considering investing in a company, it only makes sense that you’ll want to know how well it is doing.

This is where the importance of financial statements comes into play for investors, credit vendors, and banks considering lending money to a company. In these situations, you will need to understand how likely you are to be paid back so that you can charge interest accordingly. 

For this purpose, it’s great to have an investor relations dashboard at hand. With metrics such as the return on assets, return on equity, debt-equity ratio, and more, the investor’s dashboard displayed below offers a detailed overview of the company’s performance tracked over a period of time. The value of this tool lies in its interactivity. If you want to take a deeper look at some of these indicators, you just need to click on them, and the entire report will be filtered based on that. 

**click to enlarge**

The importance of financial analysis and statements also applies to stakeholders. If you own equity in a firm or are an activist investor who owns a major equity position, then having full disclosure of all assets, liabilities, use of cash, revenues, and associated costs is essential. You will also want to understand if the business is doing something it shouldn’t (such as in the case of Enron).

Due to a series of laws known as Sarbanes-Oxley , there is more standardization/legal cooperation within the world of financial data analysis and reporting. These laws are designed to prevent another situation like, and we’ll say it again – Enron – from happening.

3) For internal decision-making

As mentioned, financial reports are not the best tools for making all internal business decisions. However, they can serve as the ‘bedrock’ for other reports (such as management reports ) that CAN and SHOULD be used to make decisions.

These reports must be as accurate as possible – otherwise, any management reports (and ensuing decisions) based on them will be sitting on a shaky foundation. This is where companies can run into trouble, using legacy methods (such as one massive spreadsheet that multiple users have access to) rather than reaping the benefits of reporting by utilizing financial dashboards instead.

In fact, a survey conducted by Deloitte to generate awareness about the value of good financial analytics reporting states that most respondents have identified an “insufficient level of details” as the main issue when it comes to reporting on finances. This is because the techniques and templates used are too old. Modern online dashboards put these problems in the past by providing at-a-glance information on your company's financial health for both yourself and others in a way that is intuitive and detailed.

Remember: the government (and outside investors) don’t care WHY your financial reports are inaccurate. They’ll just penalize you for being wrong – it’s that cut and dry.

4) For improved internal vision,

Things can quickly fall apart if your financial insights or data are fragmented. Financial analysis and reporting are accurate, cohesive, and widely accessible ways of sharing critical financial information throughout your organization. They help answer a host of vital questions on all aspects of your company’s financial activities, giving internal and external stakeholders an accurate, comprehensive snapshot of the strategic and operational metrics they need to make decisions and take informed action.

5) For building strategies and ensuring profitability

Expanding on the previous point, financial analysis and reporting are critical to building informed strategies and ensuring the business stays profitable. In fact, going back to the Deloitte survey we mentioned earlier, 67% of the respondents believe that the information included in their financial statements is key to “identifying effective ways to reduce costs and to eliminate potential losses to maintain profitability.” 

That said, these types of reports become critical to the financial health of a business. It allows managers and other stakeholders to build informed strategies to make the company more profitable while empowering every key player to rely on data for decision-making. With the help of modern online reporting software , companies can find trends and patterns in real-time and monitor their income and expenses to allocate resources smartly. 

6) For raising capital and performing audits

Financial reporting and analysis assist organizations, regardless of industry, in raising domestic and overseas capital in a well-managed, fluent way – an essential component to ongoing commercial success in today's competitive digital world.

Also, financial analysis and reporting facilitate statutory audits. Statutory auditors are required to audit an organization's financial statements to express their opinion. Reporting tools or software will give this official, concise, accurate, and compliant information – which, of course, is vital.

7) For managing financial ratios

Ratios are essential to a business’s fiscal management initiatives - and there are many to consider. In this context, ratios represent the fine juggling act businesses must perform to ensure the operation runs efficiently.

Financial ratios also help investors break down the colossal data sets accrued by businesses. A ratio gives your information form and direction, facilitating valuable comparisons on different reporting periods.

Displayed visually, modern financial graphs and dashboards provide invaluable performance-based information at a glance, offering essential tools for accurate benchmarking and real-time decision-making.

Critical finance analysis ratios include the Working Capital Ratio, Quick Ratio, Return on  Equity (ROE), and Berry Ratio. Armed with this wealth of insight, it’s possible to preserve your company’s financial health while developing initiatives that tip the fiscal balance in your favor, boosting your bottom line. The image below is a visual example of financial reporting tracking the quick ratio. 

Generated with a professional financial KPI tool , the quick ratio is a metric that tracks the short-term liquidity or near-cash assets that can be turned quickly into cash. The point of this KPI, also known as the acid test ratio, is to include only the assets that can be easily converted into cash, usually within 90 days or so, such as accounts receivable.

8) For accurate projections & predictive strategies

When considering the importance of financial statements to stakeholders, it’s worth mentioning the predictive power of financial analysis.

We’ve explored how financial dashboards offer dynamic visualizations from trend spotting and real-time decision-making. Digging a little deeper, fiscal reporting tools also provide comprehensive insights into a range of financial performance and processes. Historic, real-time, and predictive data combined offer a balanced snapshot of metrics that help users make incredibly accurate projections based on past or emerging trends.

By making projections based on concrete visual data, developing strategies that benefit financial health while nipping any potential issues in the bud is possible.

For example, personal financial management provider Mint.com used predictive analytics to grow its user base and increase its bottom line. Analyzing a mix of consumer data and key financial performance metrics, the company was able to streamline its processes while offering its customers an end goal and working backward.

By providing a predictive goal or aspiration, the business worked in reverse (both internally and externally), developing accurate solutions or strategies that offered the best return on investment (ROI). Not only did this predictive strategy streamline Mint’s internal processes, but the company grew from zero to 1 million subscribers in a relatively short period.

Senior executive Noah Kagan explained the company’s financial triumph:

“Think of it as a road trip. You start with a set destination in mind and then plan your route there. You don’t get in your car and start driving without the hope that you magically end up where you wanted to be.”

9) To lower risk and prevent fraudulent activities

Expanding on our previous point, the depth of data and predictive capabilities of the financial BI dashboard software can significantly mitigate financial risk.

Working with the right mix of metrics, you will begin to see any potential dips in performance or negative patterns unfold intuitively, which means you can take critical actions that prevent potentially devastating monetary calamities.

Armed with dynamic, visual, and interactive KPIs, not only can you mitigate financial risk and protect your company from glaring inefficiencies, but you will also be able to make smarter investments and decisions. Here are some of the KPIs that you should focus on for financial protection and growth:

• Gross Profit Margin
• Net Profit Margin
• Working Capital
• Operating Expense Ratio
• Return on Assets
• Return on Equity
• Cash Conversion Cycle
• Vendor Payment Error Rate

In addition to reducing financial risk across the board, an analytics dashboard can also protect your business from fraudulent activity. And, considering 46% of companies across sectors have fallen victim to financial fraud in the past two years, protecting yourself from internal or external cyber-related crime matters now more than ever.

Through frequent benchmarking and analysis, you will increase your chances of identifying any abnormalities and investigating the matter immediately. This quick response approach will empower you to get to the root of the problem, tackling the issue while reducing further financial damage.

10) To ensure transparency across the board

As we repeatedly mentioned throughout this post, reporting on finances is key to the internal functioning of a business. But not just that, financial statements are also very useful to ensure transparency. For instance, a business working in the public sector might be financed by taxpayers or donors; therefore, they need to be accountable for the way they spend the money they receive. For this purpose, financial reports play a fundamental role since they ensure that public entities are transparent and compliant and that people maintain a relationship of trust with these entities.

Another example is with big enterprises. Customers are becoming more and more critical of the way companies make business decisions today. By making their financial data public and transparent, big enterprises can build stronger relationships with their customers, for example, by showing their charitable actions or sustainability spending. On the other hand, if you offer long-term services, providing information about your company's financial performance can be a reassurance for potential clients that you can stay in business with them for a long time.

In summary, financial analysis and reporting can help businesses of all sizes build trusted relationships with investors, shareholders, employees, and even customers. Clearly communicating that the company is doing well financially can bring several benefits. Let’s look at some of them below. 

The Benefits Of Financial Reporting

To continue our journey, let’s consider the key benefits of financially-based reporting and analytics.

• Improved debt management: As you know, debt can cripple the progress of any company, regardless of sector. While there may be many different types of financial reporting and analysis concerning purpose or software, almost all solutions will help you track your current assets divided by the current liabilities on your balance sheet to help gauge your liquidity and manage your debts accordingly.
• Trend identification: Regardless of what area of financial activity you’re looking to track, this kind of reporting will help you identify trends, both past and present, which will empower you to tackle any potential weaknesses while helping you make improvements that will benefit the overall health of your business.
• Real-time tracking:  By gaining access to centralized, real-time insights, you will be able to make accurate, informed decisions swiftly, thereby avoiding any potential roadblocks while maintaining your financial fluidity at all times.
• Liabilities: Managing liabilities is critical to your company’s ongoing financial health. Business loans, credit lines, credit cards, and credit extended from vendors are all integral liabilities to manage. Using a financial report template , if you plan to apply for a business expansion loan, you can explore finance data and determine if you need to reduce existing liabilities before making an official application.
• Progress and compliance: As the information served up by financial reporting software is both accurate and robust, not only does access to this level of analytical reporting offer an opportunity to improve your financial efficiency over time, but it will also ensure you remain 100% compliant – which is essential if you want your business to remain active.
• Cash flow: Big or small, an organization’s cash flow is essential to its ongoing financial health. Working with a mix of detailed metrics and KPIs, it’s possible to drill down into cash flow in relation to anticipated profit and liabilities, keeping your monetary movements secure and fluent in the process.
• Communication & data access: Any modern financial report worth its salt is accessible to and optimized for a multitude of devices. By gaining unlimited access to essential financial insights, you can respond to challenges swiftly while improving internal communication across the board. If everyone understands emerging trends and can share vital financial insights, your organization will become more efficient, more innovative, and safeguarded against potential compliance issues or errors.

Who Uses Financial Reporting And Analysis?

We’ve already stated the importance of financial analysis and reporting throughout the post and how they serve as communication tools to keep internal and external stakeholders informed and connected. Financial reports are versatile analytical tools businesses of all sizes use to review their data, stay compliant, and ensure profitability and healthy financial performance. That said, various groups can benefit from financial analysis and reporting for different purposes; some of them include: 

• Investors, shareholders, and lenders : Investors and shareholders use financial reports to assess the state of their investments and how the company is generating profit.  On the other hand, lenders use them to understand the ability of the company to pay back loans and related interest charges. 
• Business Managers: Probably more than any other stakeholder on this list, managers are the ones that can benefit the most from financial reports. Having an efficient financial reporting framework in place allows them to track performance on a deeper level and build smart strategies that will ensure healthy and steady development. 
• Regulatory institutions : Tax agents and various governmental entities also gather financial information to monitor that businesses comply with tax regulations. No matter the business size, paying taxes is an obligation that cannot be evaded. Modern financial analysis allows for an organized view of a company's numbers to ensure that all standard procedures are being followed. More on this point later! 
• Consumers or customers: Transparency is key in customer relationships. Companies and enterprises use financial reports as open communication with their clients about earnings, investment activities, or charitable donations. On the other hand, customers can also benefit from financial statements when considering which supplier to select for a contract, as they can judge the ability of the supplier to stay in business for a long period of time. 
• Employees: Modern financial reporting empowers employees from all departments and levels of knowledge to empower themselves using financial data. Through modern dashboard technology, employees can visualize important financial information to measure the performance of their activities and make informed decisions. 

5 Essential Use-Cases For Financial Reporting

Up until now, we’ve looked at things from the big picture. Now, let’s get a little more tangible and down-to-earth by exploring some valuable questions that financial reports (and the reports based on them) can help you answer.

1. Is purchasing this stock a good idea?

If you’re really doing your due diligence on a company you’re considering investing in as an individual or on behalf of your current organization, financial data analysis and reporting can give you some (relatively) “hard” data that will help you make your decision.

This is also one way to gain insight into whether a company is potentially under or overpriced in the stock market.

2. Are we profitable? Will we be in the future?

Without embracing the importance of financial statements, it’s difficult to tell how much your company makes after paying all expenses and payroll. Since a company exists mainly to make profits for itself and its shareholders, this is crucial information – no compromises.

3. How much cash ‘runway’ do we currently possess?

If you’ve ever been a part of the management team of a startup, you might have some idea of how stressful it can be not to know if you’ll be able to ‘make payroll’ in the coming months.

That’s where the importance of financial statements comes in.

Cash is oxygen to a business, and financial reporting analysis can help you see how many months’ payroll your business can give out while remaining financially solvent (assuming that revenue numbers stay the same).

This is a good ‘worst-case scenario’ exercise to conduct regularly – and it’s even more sturdy if you assume that your revenues will fall over the next few months compared to your best guess projections.

4. Do we have the capital to invest in new lines of business?

Some companies, like Apple , like to sit on colossal amounts of cash. Their strategy is to have this money built up so they can remain financially solvent even if some catastrophic things happen to the economy.

However, other companies prefer to invest their money if they can do so while remaining financially healthy. For example, computer chipset manufacturers like Intel upgrade their factories and equipment regularly.

These upgrades are extremely expensive, and while they are a good long-term investment, the company in question must ensure they have the short-term cash flow to support these kinds of moves.

5. Are my vendor relationships as healthy as they should be?

When considering ‘why is financial analysis important?’ it’s always worth considering your vendors. Whether a service- or product-based business, your vendor or supplier relationships are tightly linked to your company’s ongoing financial health.

If your supplier or vendor relationships are strained, inefficient, or fraught with issues, you will stunt organizational productivity, damage your brand reputation, and ultimately, lose money (frequently).

Typically, your vendors or suppliers have individual payment processes and credit rules. Streamlined financial analytics ensures payments and transactions remain fluent at all times, especially if used with a modern client dashboard .

Plus, by working with metrics such as Vendor Payment Error Rate, it's possible to keep track of vendor payments while identifying any under or overpayments during a set timeframe. Accessing this level of insight will optimize your vendor or supplier processes, saving time and money.

3 Different Ways Of Financial Reporting And Analysis

“In a perfect world, investors, board members, and executives would have full confidence in companies’ financial statements… Unfortunately, that’s not what happens in the real world, for several reasons.” – Where Financial Reporting Still Falls Short, The Harvard Business Review article

We won’t get too deep into the ‘financial reporting rabbit hole’ at this point, but we can say with certainty that there are many, many pitfalls associated with this kind of reporting. Some are technical pitfalls, while others are ethical ( Enron , anyone?).

Right now, it’s enough to understand that there are three main ways that financial reports are standardized and one critical element to consider when working with EU-based data of any kind:

• The GAAP (Generally Accepted Accounting Principles) . This is the system the United States uses, and almost no one else (just like the Imperial measurement system!).
• The IFRS (International Financial Reporting Standards) . This system is utilized by more than 110 countries worldwide, including Canada, Australia, India, and China (although China and India have ‘customized’ the IFRS in their own ways).
• The GDPR: (The General Data Protection Regulation): The GDPR came into effect on May 25, 2018, and is designed to modernize the laws that protect the personal information of individuals, which means that if you're handling sensitive financial data of any kind, insights or metrics (involving that of your investors, clients or partners), you must ensure that your reports are compliant.

These differences in standardization have real-world consequences. As the HBR article linked above states:

“Cadbury’s GAAP-based return on equity was 9% — a full five percentage points lower than it was under IFRS (14%). Such differences are large enough to change an acquisition decision.”

6 Common Types Of Financial Reporting

Financial data is not easy to understand, and getting everything together in an infinite Excel sheet makes extracting valuable information from it even harder. With this issue in mind, interactive financial reporting software has been developed to assist businesses in the visualization and analysis of their most important financial information. With technologies such as predictive analytics, automated reporting , and intuitive dashboards, businesses can extract insights in real-time to make important financial decisions. 

We’ve already theoretically discussed some common types of financial reports at the beginning of this post. Now, we will cover some visual examples of these types to put their value into perspective. These 5 examples were generated with a professional financial dashboard generator . 

1) Income Statement

This particular financial reporting template tells you how much money a company made (or lost) in a given time period (typically a fiscal year). It does so by showing you revenues earned and expenses paid, with the ultimate goal of showing a company’s profit numbers.

What makes this template so valuable is that it offers a complete overview of the month-to-month performance of the business. For instance, the operating costs (OPEX) are broken down by month and department. This way, decision-makers can spot any inefficiencies and pinpoint the causes and origin to optimize them promptly. Likewise, the earnings before interest and taxes (EBIT) are broken down with a target line to easily evaluate if the business’s finances are developing according to plan.

Primary KPIs:

• Gross Profit Margin Percentage
• Operating Profit Margin Percentage
• Net Profit Margin Percentage

2) Balance Sheet

Moving on with our list of financial reporting examples, we have a balance sheet generated with a professional dashboard builder that offers a snapshot of your assets and liabilities (aka debts) at a given moment in time. It’s possible to fall into bother with your profitability and cash flow situations while having a healthy balance sheet (especially if you have a lot of money tied up in physical inventory), and this report will help you dig deeper, assisting your strategic decision-making.

3) Cash Flow Statement

This report shows how much money flowed into and out of your business during a period. The cash flow statement ensures you have enough money to make payroll.

This highly interactive and visually appealing template provides the necessary data to get an overview of your company's liquidity and current cash flow situation. In this case, we can see that the quick ratio is showing a red exclamation mark, which could mean that your company cannot pay the current liabilities with the most liquid assets. To get deeper insights into this situation, the dashboard also offers detailed breakdowns of days sales outstanding and days payable outstanding for the last 12 months, making it possible to find improvement opportunities to drive growth and success.

• Current Ratio
• Accounts Payable Turnover
• Accounts Receivable Turnover

Our next two financial analysis report examples are full dashboards that host a mix of visual metrics and KPIs, offering a complete picture of a company’s fiscal activities in action. Let’s take a look.

4) Financial KPI Dashboard

Offering an essential snapshot of vital financial performance data, a robust financial KPI dashboard offers a cohesive mix of tables, graphs, and charts designed to maintain fiscal health. Working with KPIs such as Working Capital, Cash Conversion Cycle, Budget Variance, and more, this dynamic financial reporting system will empower you to reduce inefficiencies, make accurate forecasts, and keep cash flowing through the organization effectively.

• Quick Ratio / Acid Test
• Budget Variance

5) CFO Dashboard

Also known as the ‘CFO cockpit,’ this powerful CFO dashboard provides a digestible glance at high-level fiscal metrics and essential economic trends. With detailed insights into employee satisfaction and the Berry Ratio, here you will find everything you need as a senior decision-maker to identify emerging trends, make informed organizational decisions, and consistently meet (or even exceed) your profit targets.

• Payroll Headcount Ratio
• Economic Value Added (EVA)
• Berry Ratio
• Employee Satisfaction

6) Accurate vs Forecast Dashboard

At first glance, this financial reporting dashboard offers all the same indicators as an income statement. However, this information is complemented with valuable forecasts for costs and income. Considering the fast-paced nature of the current business landscape, getting an accurate picture of what will happen in the future becomes an invaluable competitive advantage. 

The dashboard offers insights into 3 key areas: revenue, costs, and net profit. Each of them is depicted with the actual and forecasted value for the last 12 months and the absolute variance in dollars and a percentage. How accurate the absolute difference is will depend on the organization's goals and how close they are to the forecast. However, they still represent an accurate picture to make important decisions about budgeting and other processes.

In the lower part of the example, the metrics are broken down by month and compared to the forecast. This is valuable input, allowing us to dig deeper into the data. For instance, the cost breakdown shows all departments stayed within the expected spending, except for marketing. In that scenario, it would be smart to analyze whether those extra costs are justified. 

Primary KPIs:  

• Actual vs Forecast Income
• Actual vs Forecast Expenses

What Should a Successful Financial Reporting System Include?

So far, we have gone through benefits, examples, use cases, and much more valuable information regarding financial reporting requirements and processes. To finalize this insightful guide, we will review some key elements a successful financial reporting system should include. 

In the past, the tools and techniques used to generate these reports were static, making the process different from today's. Whereas, in the past, report generation required a lot of time and manual work, today, reports are generated with live data that enables businesses to make important decisions in real time. That being said, below, we will present a few key elements to success in today’s modern business landscape.  

Real-time data: As mentioned, one of the key elements of such a system is the presence of real-time data. Tracking every last detail of your financial performance as soon as it occurs enables you to make strategic decisions that will drive success and significantly mitigate risks. For instance, you can allocate resources smartly based on live trends or control expenses that are not going as planned and might bring negative consequences in the future, among many other things. 

Predictive analytics is another element that has become fundamental for businesses wanting to extract the maximum potential from their financial data. This technology uses a mix of current and historical data to extract patterns and trends from financial information and generate accurate forecasts about future performance. This helps businesses predict and optimize several processes, such as anticipating future product demand or identifying potential loss drivers, among others.  

Automation: Traditional financial reporting and analysis requires endless hours of manual work not only on generating the actual report but also on data collection, classification, and analysis. This made the process way less efficient, as by the time a report was finished, its data might not be valuable anymore. That’s why automation has become a key requirement. Being able to automatically generate reports with live data leaves decision-makers enough time to focus on other important tasks while significantly mitigating the risk of human error from manually generating a report. 

Accessibility and collaboration : For a company’s financial goals to be achieved, it is necessary to involve all departments and relevant stakeholders in the process. This is possible thanks to the level of accessibility and collaboration provided by modern financial analytics software such as datapine. Reports are generated using interactive data visualizations that make the data in them easier to understand for non-technical users. Plus, they can be easily shared in multiple formats to support meetings and discussions.

Financial Analysis And Reporting Trends

As you learned by now, the financial analysis and reporting industry never stops evolving. New technologies and innovations emerge each year to help companies keep up with their competitors and the changing regulatory landscape. To help you stay current, we will discuss the top trends you should be aware of below. Starting with cloud-based solutions. 

• Cloud based-solutions 

The first, arguably the most important, trend we will discuss is adopting cloud-based solutions. Traditionally, businesses have relied on desktop-based tools to manage their financial data and generate reports. As we mentioned earlier in the post, this was inefficient and subject to critical security issues. 

With this situation in mind, and mostly due to security concerns, we can expect to see more and more businesses turning to the cloud as a way to improve their data management process with enhanced scalability, security, automation, and real-time updates. The online nature of cloud BI solutions makes it possible for businesses to access their data more easily and collaborate with other stakeholders, improving the quality and accuracy of financial reports. 

• XBRL reporting

According to Investopedia, eXtensible Business Reporting Language (XBRL) is defined as a “software standard that was developed to improve the way in which financial data is communicated.” It is basically an international standardized language that enables businesses to extract and share human-readable financial data in a format that machines can process.

XBRL was born out of a necessity to unify financial data for comparisons and better accessibility. That is why, in the coming years, we can expect regulators to ask businesses to implement XBRL reporting into their financial statements as a mandatory practice. The standard is already being used in over 50 countries, replacing paper, PDF, and HTML-based reports.

So, how does XBRL work? XBRL enables businesses to add tags to each data element from their reports within a taxonomy. A taxonomy is a grouping of financial concepts known as "elements." Each element is defined as a concept, and the different relationships between the concepts. Doing so enables regulators and any other user of the data to analyze and compare it easily as all reports will have the same format and tags, making it a global financial language.

• Sustainability reporting 

We already talked a bit about ESG reporting earlier in the post, and we can tell you it is one of the most important and fastest-growing trends in the finance world at the moment. The popularity of this trend comes from customers, investors, and regulators increasingly demanding businesses of all sizes take responsibility and accountability for their environmental impact. This involves not only direct damage to the environment but also fair labor, social justice, and ethical governance. 

In 2024 and beyond, we can expect businesses to complement their financial reports with the different initiatives and goals they are implementing to ensure sustainability and compliance. As more and more laws and regulations come out and more businesses realize that sustainability factors can impact the company’s performance, we will see ESG reporting as a fundamental pillar for success. 

• Artificial Intelligence 

Artificial intelligence has permeated industries across the globe in the past few years, and finances are no exception. This year, we will see more companies adopt AI into their reporting as a way to automate tasks like data collection, analysis, and report generation. Not just that, but some data analysis software have already implemented AI in the form of intelligent assistants that help organizations extract insights, predictions, and recommendations to help make smart strategic decisions and ensure healthy finances and steady growth. 

Using artificial intelligence in finances can help make more efficient and accurate decisions at a lower cost and with less manual risk.  

So, What Is The Purpose Of Financial Reporting? 

To reiterate: What is the importance of financial reporting? Thoughts or feelings aside, financial reports will be around as long as businesses are trading.

Why? Governments will never stop collecting taxes and commanding compliance. Across sectors, businesses will always need to track their fiscal activities with pinpoint accuracy - and finance data reporting is the best way to do so.

In addition to paying taxes and remaining compliant in the eyes of the law, financial reporting tools allow businesses to make their fiscal activities all the more strategic, streamlined, and forward-thinking. In that sense, these tools are both functional and progressive, empowering users to accelerate the growth of their businesses by taking charge of their financial health.

While you may not be able to choose if or how you prepare financial reports, you can at least take control of how you present them. With a financial, real-time dashboard , you can see your company’s financial integrity at a glance, empowering you to make better choices while responding to constant change.

To get started with finance-based reporting, try our financial analytics software with a free 14-day trial . It’s time to take your business to the next level.

• [email protected]

Unit 13 Financial Reporting Assignment

Introduction

In this Accounting report, there will be an analysis of the Trial balance of Jack & Sons for the year ended 30th November, 2016, and with the aid of the Trial balance, comprehensive income Statement of Position will be prepared for the year 2016. This will give an in-depth analysis of the understanding of the items to be included in the Income statement and in the balance sheet. In the next part, we will be analysing the Annual Report of the two big giants in the Grocery industry i.e. TESCO and MORRISON. These are the two leading multinational groceries of the world. The thorough analysis of the Annual report along with the ratio analysis of the same will help in in-depth understanding of the actual working and finance performance of the Organizations. And a proper financial comparison of the two big organizations can be done with the thorough analysis of various financial and others important ratios. This report will help to increase our practical knowledge aspect regarding the Accounting theories.

a.) Adjusted Trial balance

The following adjustments has been done in the Trial Balance-

• Closing stock of £ 85,000 which is an asset has been mentioned in the Debit side of the Trial Balance.
• Depreciation on Equipments for the year 2016 has not been charged in the Trial balance, so we did the same and charged depreciation with the rate of 10% on the reducing balance and an amount of £ 40,500 has been added in the provision of depreciation at the credit side of the Trial balance (Trotman, et. al., 2012).
• The Provision of Depreciation for the Motor Vehicles has also been increased by £ 18000.
• Prepayment of Rent by £ 8000, which is an asset, is also mentioned in the debit side of the trial balance and reduced from the rent paid for the current year.
• There is an accrual of telephones for the current year by £ 2100 which has not been shown in the trial balance, which we have adjusted by adding the figure in the debit side of the trial balance as this expense belongs for the current year only (Trotman, et. al., 2012).
• The prepayment of Heat and lighting by £ 1000 has been shown as a different item and reduced from the current amount.
• Taxation accrual for the current year by £ 12000 has been provided in the provision of Income tax in the trial balance.
• After considering all the adjustments in the trial balance, there is a mismatch in both the sides of £ 16,600 which has been further transferred to Suspense A/C (Horngren, 2013).

b.) Statement of Comprehensive Income Statement

(Weetman, 2013)

The Comprehensive Income statement includes all the expenses and revenues concerning in a particular period. It includes only those items which pertain to that year and the items which either is of the last year or for the next year are excluded from this statement. In the following Income Statement, following adjustments were made 1) Cost of sales was calculated by using the following formula, Opening stock+ Purchases- Closing stock= Cost of Sales And further was included in the income statement. 2) All the operating expenses were added up than among which the following adjustment were done (Weetman, 2013) £ 8000 from rent was less because this £ 8000 pertains to the next year and was included in the trial balance. £ 1000 from Heat & Lighting was excluded as these also belong to the next year and was already included in the Heat & Lighting. Accrual of Telephone expenses of £ 2100 belonged to this year but was included in the current year therefore this has been added in the income statement of the current year. 3) Provision of taxation which belonged to this year of £ 12000 were not included, therefore this was also provided in the current year and less from the current year’s profit. 4) Depreciation on the Motor vehicles and on Equipment was not provided, therefore provisions have been provided for both the Assets on the rates as provided in the Adjustments entries. 5) Closing stock was mentioned in the last that was also adjusted, in the Income statement.

All the adjustments were done and the comprehensive Income statement was prepared accordingly, keeping in mind the things pertaining to this year only and excluding the things which do not belong to this year (Kemp & Waybright, 2013).

C) Statement of Position

(Kemp & Waybright, 2013)

Adjustments in the Statement of Position

1)  Closing stock was mentioned in the Asset side of the Balance sheet/ Statement of position. 2) The Two prepayments of Heat and Light and Rent were assets for the organization, as prepayments for further years are considered as Assets for the organization, and thereby are included in the Assets side of the Statement of position or balance sheet. 3)  Provision of depreciations for both assets that is Equipments and Motor Vehicles are increased with the amount charged for the current year. Therefore the depreciations of 40,500 and 16000 respectively were further added to the provisions. 4) Provision of income tax were provided in the liability side of the Balance sheet with 12000, this was previously not mentioned, therefore added up in the balance sheet.

All the adjustments were done and balance sheet was prepared accordingly. The complete analysis of the Statement of Position made an analysis of the Assets and liabilities side, and increased the information knowledge about the Financial statements (Kemp & Waybright, 2013).

Comparison of the Performances of both the Companies

Tesco - Tesco is one of the biggest multinational groceries in British. It is one of the leading organizations in terms of revenue and profits among all the groceries stores throughout the globe. Looking at the Annual reports of the Tesco of the last 3 consecutive years i.e. 2013, 2014, 2015, its been evident Revenues has increased with the year 2014(£ 63557) with a certain margin, than it decreased in 2015(£ 62,284) again with certain margin. The Profits of the organization has also seen some great ups and downs in the year 2013 is £120 in the year 2014 it increased to £970 but in the year 2015 it incurred huge losses i.e. (£5766), which shows unsuccessful expansion or any wrong strategy (Ahrendsen & Katchova, 2012). It shows that with the consistent performance in the years 2013 and 2014, it than entered in to other expansion plans which ultimately lead to decrease in the performance of Tesco. Morrison - Morrison is also one of the biggest groceries after Tesco, Sainsbury’s etc. This has emerged as prominent and trustworthy grocery store and is gaining popularity with its expansion plans. The turnover of the Morrison in the year has been £ 18116 which show a decline in the year 2014 £ 17680, this meagre decline in the turnover shows the intense competition in the groceries industry. The Profits figures of the organization through all the three years i.e. 2013, 2014 and 2015 showed a declining graph. In the year 2013 it was about £ 1206 where in the year it declined and was £ 1074 and it further declined in the year 2015 and was £761. The declining graph of the profits of the organization shows the inability of the organization to increase its sales and usage of wrong marketing techniques and methods (Ahrendsen & Katchova, 2012). On an overall comparison of both the Organization it is clearly evident that, Morrison despite investing in Assets and improving business working methods, it is unable to increase its profits as well as turnover as compare to its competitive “ Tesco PLC ". Where Tesco has still managed to be on the leading side in the concerned industry but due to certain wrong strategies and techniques, it showed a decline in its revenue and profits in the year 2015. As recommendation, Morrison needs to improve its working position by focusing on its marketing plans and thereby increase its turnover and profits. And Tesco needs to maintain its position by correcting its wrong measures and techniques (Ahrendsen & Katchova, 2012).

Calculation of Ratios  

Liquidity Ratio

Efficiency Ratio

Analysis The Declining Operating expense ratio of Morrison’s expresses the increasing operating expense of the organization without increase in its sales. Therefore the company needs to increase its sales and also need to curtail in its increasing administrative/ operating expenses. The Asset turnover ratio here expresses that the company is making consistent utilization of its Total Assets to earn revenue for the Organization. But there is a meagre decline in the ratio every year which shows that net sales are declining despite having proper assets (Maricica & Georgeta, 2012).

With the thorough analysis of the Trial balance and related adjustments entries, we understood the various aspects of the Accounting adjustments. Through Preparation of the Comprehensive Income Statement we learnt regarding the incomes and expenditures which are related with the current year and through preparation of the Statement of position, the understanding of the Assets and liabilities were learnt. This report gave the complete understanding over the preparation of the financial statements of an Organization. With the analysis of the Annual reports of the Two Organizations in the same industry that is Tesco and Morrison, developed the understanding level of the comparison and understanding level of the Annual Reports. And the thorough ratio analysis, gave the idea about the understanding of the financial performance of the organizations. Overall, this report enhanced the understanding of the Accounting aspect and ratio analysis of the existing organizations; it also helped in increasing in the understanding of the practical aspect of the Accounting systems. Throughout the preparation of the report knowledge of accounting increased to a great extent and various learning aspects were very useful in increasing the Accounting knowledge.

Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS data",  Agricultural Finance Review,  vol. 72, no. 2, pp. 262-272. Deegan, C.M. 2016,  Financial accounting ,  8th edn, McGraw-Hill Education (Australia) Pty Ltd, North Ryde, N.S.W. El-Dalabeeh, A.K. 2013, "The Role of Financial Analysis Ratio in Evaluating Performance: (Case Study: National Chlorine industry)",  Interdisciplinary Journal of Contemporary Research In Business,  vol. 5, no. 2, pp. 13.

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Module 4: Completing the Accounting Cycle

Practice: preparing financial statements, learning outcomes.

• Prepare an income statement
• Prepare a statement of owner’s equity
• Prepare a balance sheet
• Identify the three main components of the statement of cash flows
• Practice: Preparing Financial Statements. Authored by : Mike Zerrahn. Provided by : Lumen Learning. License : CC BY: Attribution

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How to Write a Financial Report

Last Updated: April 2, 2024 Fact Checked

This article was co-authored by Michael R. Lewis . Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin. This article has been fact-checked, ensuring the accuracy of any cited facts and confirming the authority of its sources. This article has been viewed 385,782 times.

A financial report is an informational document about the financial health of a company or organization, which includes a balance sheet, an income statement and a statement of cash flows. Financial reports are often reviewed and analyzed by business managers, boards of directors, investors, financial analysts and government agencies. Reports must be prepared and disseminated in a timely manner, and they must be accurate and clear. Although creating a financial report may seem daunting, the accounting required is not all that difficult.

Preparing to Write

• To determine the period of time your financial report should cover, review the governing documents of your organization, such as the bylaws, corporate charter or articles of incorporation. These documents may describe how often the financial report should be prepared.
• Ask an executive at your organization how frequently reports are expected to be prepared.
• If you are the executive of your own organization, consider when the financial report would be most useful to you and select that as your financial report date.

• For example, make sure all accounts payable and receivable have been processed, verify that the bank reconciliation is complete, and ascertain whether all inventory purchases and product sales have been recorded.
• You'll also need to consider any liabilities that may be unrecorded as of the financial report date. For example, has the company received any services that have not been invoiced? Are employees owed wages that have not yet been paid? These items represent accrued liabilities and must be recorded in the financial statements.

Preparing the Balance Sheet

• The balance sheet items are reported as of a specific day of the year. For example, the balance may be prepared as of December 31.

• Start with current assets, such as cash and any items that will be converted to cash within one year of the balance sheet date. At the end of this section, include a subtotal of the current assets. [2] X Research source
• Next, list the non-current assets. Non-current assets are defined as any assets that are not in the form of cash and will not be converted to cash any time soon. For example, property, equipment and notes receivable are non-current assets. Include a subtotal of the non-current assets.
• Finally, sum the current and non-current subtotals and label this line “Total Assets.”

• Begin by listing current liabilities. These are liabilities that are due within one year, and typically include accounts payable, accrued liabilities and the short-term portion of mortgages and other loan payments. Include a subtotal of the current liabilities. [3] X Research source
• Next, include the long-term liabilities. These are any liabilities that will not be settled within one year, such as long-term debt and notes payable. Include a subtotal of long-term liabilities.
• Sum the current and non-current subtotals and label this line “Total Liabilities.”

• Here, make a list of all the equity accounts, such as common stock, treasury stock and retained earnings. Once all the equity accounts are listed, sum them and add the caption “Total Equity.”

• Shareholder's equity should correspond to a company's assets minus its liabilities. As mentioned previously, this is the money that would be left over if all assets were sold and all liabilities paid. Hence, liabilities plus equity should be equal to assets.
• If the balance sheet does not balance, double check your work. You may have omitted or miscategorized one of your accounts. Double check each column individually and make sure everything is included that ought to be. You may have missed a valuable asset, or a significant liability.

Preparing the Income Statement

• For example, an income statement is often drafted for the period from January 1 to December 31 of a particular year.
• Note that it is possible to prepare a financial report for a single quarter or month, while your income statement might be for a full year. Your financial report will be easier for readers to understand if they are for the same period, but this isn't strictly necessary.

• Be sure to report each type of revenue separately, adjusted as necessary for any sales discounts or return allowances, for example: “Sales, $10,000” and “Service Income, $5,000.”
• Organize the sources of revenue in a way that is meaningful to the company. Some options may be revenue by geographical region, by management team or by specific product.
• When all revenue sources have been included, sum them and report the total as “Total Revenue.”

• To calculate a cost of goods, you should add the direct materials, direct labor, factory costs and shipping or delivery expenses. [7] X Research source
• Subtract cost of goods sold from total revenue and title this number “Gross Profit.” [8] X Trustworthy Source U.S. Securities and Exchange Commission Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source

• Subtract the sum of these costs from your gross profit and title this number “Profit Before Taxes.”

• Adding retained earnings from the beginning of the year to the current year's net income or loss results in the total retained earnings balance.

Preparing a Statement of Cash Flows

• Similar to the income statement, the statement of cash flows covers a period of time, such as January 1 to December 31.

• List the operating activities of the organization. This may include items such as cash receipts from sales and cash paid for inventory. Subtotal these items and label the resulting total “Net Cash Provided by Operating Activities.”

• This section relates to cash paid or received from investments in property and equipment, or investments in securities, such as stocks and bonds. [10] X Trustworthy Source U.S. Securities and Exchange Commission Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source
• Add a subtotal called “Net Cash Provided by Investing Activities.”

• This section should shows inflows and outflows from securities and debt issued by the organization. [11] X Trustworthy Source U.S. Securities and Exchange Commission Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source Add a subtotal called “Net Cash Provided by Financing Activities.”

• You can add the increase or decrease in cash to the cash balance at the beginning of the period. The sum of these two numbers should equal the cash balance shown on your balance sheet.

• The notes might contain information about company history, future plans or industry information. This is your opportunity to explain to investors what the report means and what it shows or doesn't show. It can help potential investors see the company through your eyes. [12] X Trustworthy Source U.S. Securities and Exchange Commission Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source
• Typically, the notes also include an explanation of accounting practices and procedures used by the company and explanations of balance sheet captions.
• This section also often includes details about the company's tax situation, pension plans, and stock options.

Expert Q&A

• Refer to the Generally Accepted Accounting Principles (GAAP) for additional help in preparing financial reports. GAAP is the standard for accountants and financial professionals in all businesses and industries. [13] X Research source Thanks Helpful 0 Not Helpful 0
• If you are having trouble preparing your financial report, look up the financial report of a company that operates in the same industry as your organization. You may be able to take away valuable insights about how to format your report. The Securities and Exchange Commission's website publishes financial statements for a variety of different companies. [14] X Trustworthy Source U.S. Securities and Exchange Commission Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source Thanks Helpful 0 Not Helpful 0
• Remember to use clear labels for each entry in the balance sheet and on the income statement. The information should be clear to a reader of the financial statements who is not familiar with the specifics of your company. Thanks Helpful 0 Not Helpful 0

• The professional regulations governing financial statements and footnotes are extensive. Consider consulting a Certified Public Accountant or other financial services professional for additional help with your financial report to make sure your report has been prepared properly and legally. Thanks Helpful 0 Not Helpful 0

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• ↑ https://online.hbs.edu/blog/post/how-to-prepare-a-balance-sheet
• ↑ https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguide
• ↑ http://www.accountingtools.com/questions-and-answers/how-to-calculate-the-cost-of-goods-sold.html
• ↑ http://www.investopedia.com/terms/g/gaap.asp
• ↑ http://www.sec.gov/

About This Article

To write a financial report, format a balance sheet that lists assets, liabilities, and equity. Combine the totals for each category and include the final total at the bottom of the sheet. Next, create an income statement page to list revenue, cost of goods sold, operating expenses, and retained earnings, then sum those categories. Lastly, create a cash flows statement page to compile operating, investing, and financing activities and include a sum at the bottom. For tips on preparing and organizing your data before writing the report, read on! Did this summary help you? Yes No

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A Comprehensive Guide on Writing Finance Assignment Reports

In order to effectively present your ideas and analysis for your finance assignments, you must write a well-structured and coherent report. Due to the difficulties in structuring their thoughts and effectively communicating them, many students find this assignment to be overwhelming. We will walk you through the process of writing an outstanding finance assignment report step-by-step in this comprehensive guide. This manual will give you the knowledge and abilities you need to succeed in your finance assignments, from comprehending the fundamental elements of a report to mastering the skill of data analysis and presenting your findings. Let's get started and learn how to write a powerful report that will impress your professors and get you the grades you deserve.

Knowing the Fundamentals of Financial Reporting

Reports for finance assignments are meticulous academic projects that call for knowledge of both the basics of finance and the craft of clear, concise reporting. A financial report's writer must have a thorough understanding of the topic because the report's goal is to clearly communicate financial information. Data analysis, interpretation, and effective communication of these insights form the foundation of finance as a discipline. The caliber of your report will invariably be influenced by how well you understand the underlying financial theories, methodologies, and applications.

Before diving into a finance assignment report, it's important to realize that these reports involve more than just number crunching; they also involve interpreting the numbers in the context of larger business decisions, economic conditions, and financial strategies. Your finance assignment report should tell a story instead of just presenting facts and figures about your financial performance, business strategy, and economic factors.

Clarifying the scope is the first step in creating a thorough finance report. You must specifically define the scope to keep your research and writing on track, whether it is for a case study, financial analysis of a specific company, or research assignment on a particular area of finance. This requires stating your report's purpose and topic in detail. For instance, if you are working on a case study, the company you are analyzing and the particular financial aspects you have been asked to explore will define the scope of your report. Or, if your assignment entails studying a particular financial market, the characteristics of that market will determine the scope.

The Basis for Your Finance Report: Research

It's time to start the research phase of your report once you've determined its scope. Any financial report's foundation is research. This will entail studying business strategies, reading and analyzing financial statements, researching financial markets, examining economic indicators, and keeping up with current events and news. During the research stage, a range of sources should be consulted, including financial statements, scholarly journals, financial databases, news reports, and more. Be discerning and critical in your research, constantly comparing data from various sources to ensure accuracy.

Building Your Finance Report: Organization and Structure

You need to write something down after the research phase. However, it's imperative to have a clear structure for your report before you start. A well-structured report frequently has the following elements:

A succinct summary :

This is a brief summary of the whole report. It should give the reader a quick overview of the topics covered in your report and the main findings or conclusions you have drawn.

The rest of your report is introduced in this section. It should include a succinct summary of the report's objectives, the subject matter, and what the reader can anticipate.

In this section, you should describe the research and analysis techniques you used, such as ratio analysis, SWOT analysis, PESTLE analysis, or any other financial methodologies.

The bulk of your report is in this. It is where you present your research's data and findings, along with your analysis of them. The facts, figures, and data presented in this section should be as specific as possible and easy to understand.

Here, you highlight your report's key conclusions and offer advice based on your analysis. This section should wrap up your report by tying together all the various threads of your analysis and emphasizing the key conclusions.

All of the sources you consulted for your report are listed in this section. Ensure that you adhere to the citation guidelines provided in your assignment.

The style of writing and presentation gives your report life, while the structure serves as its framework. Your writing should be formal, succinct, and as free of jargon as possible. Each paragraph should have a clear topic sentence at the beginning and supporting sentences that further explain that idea or concept.

Your report should be presented neatly and professionally. To present data and findings, use tables, graphs, and charts. Visual aids help people understand complex information and break up the monotony of reading text. Clearly label these visual aids and use them as references in your text.

Last but not least, never undervalue the power of revision. You can find any mistakes, inconsistencies, or unclear passages in your report by carefully reading it over. Verify your argument flows logically from one point to the next and that there are no grammatical or informational inconsistencies. This last step frequently distinguishes between a good report and a great report.

Financial Reporting: Recognizing Your Readership

It's critical to consider your audience when writing a finance report. For instance, the tone and content of a report written for a finance professor would probably be different from that of a report written for an industry expert. By making your report specifically for your audience, you can make sure that your content is not only pertinent but also delivered in a way that appeals to them.

The language you use should be appropriate for your audience. You should use formal language and, when applicable, technical finance jargon when writing for academic purposes. You might want to use plainer language and explain complicated ideas in order to appeal to a wider audience.

The Value of Reliable and Consistent Data in Financial Reporting:

A data-driven industry by definition is finance. As a result, the quality of your data has a significant impact on the quality of your financial report. Your data's dependability and consistency will have a direct impact on how valid your analysis and conclusions are.

You must locate and compile pertinent information that fits the purview of your report. Data from financial statements, market data, industry data, macroeconomic data, and more may be included in this. Make sure the information you use comes from reliable sources.

Analyze your data consistently once you've collected it. This could entail using financial models, performing trend analyses, or calculating financial ratios. Your findings will be more reliable and able to withstand scrutiny if you follow a consistent process for data analysis.

Critical Thinking in Financial Reports:

A good financial report interprets the data, identifies trends, draws conclusions, and offers recommendations in addition to simply presenting the data. Critical thinking becomes useful in this situation. In finance, critical thinking entails challenging the data, making connections between various data points, spotting trends or anomalies, and formulating well-informed predictions or suggestions based on your findings.

For instance, if you're performing a financial analysis of a business, you'll present and analyze data such as revenue, profits, and financial ratios. You could assess the company's financial health, compare the company's financial performance to industry benchmarks, and look for trends in the company's financial performance over time. You might then offer suggestions for the company based on your analysis, like ways it can boost its financial performance.

Synthesis in Financial Reporting:

The art of combining various bits of information to create a coherent whole is called synthesis. This may entail combining quantitative analysis with qualitative insights, integrating theory and practice, and synthesizing data from various sources in the context of a financial report.

Your report's depth and richness are frequently due to the synthesis. To gain insights into a company's financial performance, you might, for instance, combine financial data with knowledge of its strategy. Alternatively, you could combine recent data with historical data to find trends or forecast future outcomes.

Conclusion:

In conclusion, creating a thorough finance assignment report requires a variety of skills. It calls for in-depth research, meticulous analysis, effective communication, and a firm grasp of financial principles. You should be prepared to take on your finance assignment and write a top-notch report if you adhere to the recommendations and advice in this article. Always keep in mind that a good financial report tells a story—one about numbers, yes, but also one about performance, strategy, and business judgment. Your objective should be to present this story in the most accurate, convincing, and interesting way possible.

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Types of Financial Statements

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Financial Statement Analysis: How It’s Done, by Statement Type

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

What Is Financial Statement Analysis?

Financial statement analysis is the process of analyzing a company’s financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization and to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing the finances.

Key Takeaways

• Financial statement analysis is used by internal and external stakeholders to evaluate business performance and value.
• Financial accounting calls for all companies to create a balance sheet, income statement, and cash flow statement, which form the basis for financial statement analysis.
• Horizontal, vertical, and ratio analysis are three techniques that analysts use when analyzing financial statements.

Jiaqi Zhou / Investopedia

How to Analyze Financial Statements

The financial statements of a company record important financial data on every aspect of a business’s activities. As such, they can be evaluated on the basis of past, current, and projected performance.

In general, financial statements are centered around generally accepted accounting principles (GAAP) in the United States. These principles require a company to create and maintain three main financial statements: the balance sheet, the income statement, and the cash flow statement. Public companies have stricter standards for financial statement reporting. Public companies must follow GAAP, which requires accrual accounting. Private companies have greater flexibility in their financial statement preparation and have the option to use either accrual or cash accounting.

Several techniques are commonly used as part of financial statement analysis. Three of the most important techniques are horizontal analysis , vertical analysis , and ratio analysis . Horizontal analysis compares data horizontally, by analyzing values of line items across two or more years. Vertical analysis looks at the vertical effects that line items have on other parts of the business and the business’s proportions. Ratio analysis uses important ratio metrics to calculate statistical relationships.

Companies use the balance sheet, income statement, and cash flow statement to manage the operations of their business and to provide transparency to their stakeholders. All three statements are interconnected and create different views of a company’s activities and performance.

Balance Sheet

The balance sheet is a report of a company’s financial worth in terms of book value. It is broken into three parts to include a company’s assets ,  liabilities , and  shareholder equity . Short-term assets such as cash and accounts receivable can tell a lot about a company’s operational efficiency; liabilities include the company’s expense arrangements and the debt capital it is paying off; and shareholder equity includes details on equity capital investments and retained earnings from periodic net income. The balance sheet must balance assets and liabilities to equal shareholder equity. This figure is considered a company’s book value and serves as an important performance metric that increases or decreases with the financial activities of a company.

Income Statement

The income statement breaks down the revenue that a company earns against the expenses involved in its business to provide a bottom line, meaning the net profit or loss. The income statement is broken into three parts that help to analyze business efficiency at three different points. It begins with revenue and the direct costs associated with revenue to identify gross profit . It then moves to operating profit , which subtracts indirect expenses like marketing costs, general costs, and depreciation. Finally, after deducting interest and taxes, the net income is reached.

Basic analysis of the income statement usually involves the calculation of gross profit margin, operating profit margin, and net profit margin, which each divide profit by revenue. Profit margin helps to show where company costs are low or high at different points of the operations.

Cash Flow Statement

The cash flow statement provides an overview of the company’s cash flows from operating activities, investing activities, and financing activities. Net income is carried over to the cash flow statement, where it is included as the top line item for operating activities. Like its title, investing activities include cash flows involved with firm-wide investments. The financing activities section includes cash flow from both debt and equity financing. The bottom line shows how much cash a company has available.

Free Cash Flow and Other Valuation Statements

Companies and analysts also use free cash flow statements and other valuation statements to analyze the value of a company . Free cash flow statements arrive at a net present value by discounting the free cash flow that a company is estimated to generate over time. Private companies may keep a valuation statement as they progress toward potentially going public.

Financial statements are maintained by companies daily and used internally for business management. In general, both internal and external stakeholders use the same corporate finance methodologies for maintaining business activities and evaluating overall financial performance .

When doing comprehensive financial statement analysis, analysts typically use multiple years of data to facilitate horizontal analysis. Each financial statement is also analyzed with vertical analysis to understand how different categories of the statement are influencing results. Finally, ratio analysis can be used to isolate some performance metrics in each statement and bring together data points across statements collectively.

Below is a breakdown of some of the most common ratio metrics:

• Balance sheet : This includes asset turnover, quick ratio, receivables turnover, days to sales, debt to assets, and debt to equity.
• Income statement : This includes gross profit margin, operating profit margin, net profit margin, tax ratio efficiency, and interest coverage.
• Cash flow : This includes cash and earnings before interest, taxes, depreciation, and amortization (EBITDA) . These metrics may be shown on a per-share basis.
• Comprehensive : This includes return on assets (ROA) and return on equity (ROE) , along with DuPont analysis .

What are the advantages of financial statement analysis?

The main point of financial statement analysis is to evaluate a company’s performance or value through a company’s balance sheet, income statement, or statement of cash flows. By using a number of techniques, such as horizontal, vertical, or ratio analysis, investors may develop a more nuanced picture of a company’s financial profile.

What are the different types of financial statement analysis?

Most often, analysts will use three main techniques for analyzing a company’s financial statements.

First, horizontal analysis involves comparing historical data. Usually, the purpose of horizontal analysis is to detect growth trends across different time periods.

Second, vertical analysis compares items on a financial statement in relation to each other. For instance, an expense item could be expressed as a percentage of company sales.

Finally, ratio analysis, a central part of fundamental equity analysis, compares line-item data. Price-to-earnings (P/E) ratios, earnings per share, or dividend yield are examples of ratio analysis.

What is an example of financial statement analysis?

An analyst may first look at a number of ratios on a company’s income statement to determine how efficiently it generates profits and shareholder value. For instance, gross profit margin will show the difference between revenues and the cost of goods sold. If the company has a higher gross profit margin than its competitors, this may indicate a positive sign for the company. At the same time, the analyst may observe that the gross profit margin has been increasing over nine fiscal periods, applying a horizontal analysis to the company’s operating trends.

Congressional Research Service. “ Cash Versus Accrual Basis of Accounting: An Introduction ,” Page 3 (Page 7 of PDF).

Internal Revenue Service. “ Publication 538 (01/2022), Accounting Periods and Methods: Methods You Can Use. ”

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Note: This exam date is subjected to change based on seat availability. You can check final exam date on your hall ticket.

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•  Gupta, Ambrish, "Financial Accounting for Management - An Analytical Perspective", 4th Edition, Pearson Education.2012 Narayanaswamy, R
•  “Financial Accounting – A Managerial Perspective”, 5th Edition , Prentice Hall of India. 2015 Subramanyam, K. R. and John, J.W
•  “Financial Statement Analysis”, 12th Edition, Tata McGraw Hill. 2014 Penman, S.H
•  “Financial Statement Analysis and Security Valuation”, 4th Edition, Tata McGraw Hill. 2014 Erich, A. H
• “Techniques of Financial Analysis: A Guide to Value Creation”, 16th Edition ,Tata McGraw Hill. 2014 

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