An accurate financial statement is important for any business. They include balance sheets, cash flow statement, income statement and shareholders equity statement. They are vital in development of strategies that determine the success and failure of any business. Even the smallest numbers on a balance sheet have a huge impact on every company. If assets depreciate in value the amount has to be deducted in what the business brings. In order to make a report, businesses have to know how much the business is making. Investors and developers get to know how much the business is making by numbers such as profits before and after tax.
The It is worth noting that the tax rate of companies is high. This is because the more profit a company makes, the higher the tax rate. If you don’t have a financial statement, it can be devastating how much you make after paying for taxes. Having the most accurate financial data helps companies avoid depletion of resources. Fudging of financial statements can cause imprisonment or payment of heavy fines.
Financial statements enable companies to discover errors and avoid costly mistakes. Illegal activities are detected by investors and developers when the number don’t add up. To solve any financial records that have errors, reconciliation talks have to held. This is why companies spend a lot of time checking their records of account by confirming each entry to avoid accounting errors.
Additionally, an accurate financial statement builds trust between the organization and its investors and developers.
They need a good sign that their money is being put into good use It is pleasing when they see profits on the balance sheet. There are some large scale companies such as WorldCom and Enron that were closed because of fudging financial data This is why governments have become more strict rules concerning compliance and accounting. Cash from every source of the business is what pays back investors and developers. A cash flow statement is what enables them to know how much the business is spending and what assets have been purchased.
In order to improve payment cycles, financial data plays a major role. Outgoing payment such as daily wages and salaries has to be paid. Dividends have to get paid to investors and developers as well as management of the inventory. This cannot be done if the numbers are not correct. The company needs to be aware of how much interest is paid or received to pay a loan especially if it is overdue. Financial statements are vital to help investors and developers know if their investment is safe and profitable. Most importantly, they need to know how their money was spent and where it is now.