What is a financial statement showing the revenue and expenses for a fiscal period?
Accruals are adjustments for revenue that has been earned but is not yet posted to the general ledger accounts, and expenses that have been incurred but are not yet posted to the general ledger accounts. Year-end accruals are adjusting entries to make sure revenue and expenses are recorded in the correct fiscal year. Show
A revenue accrual does not need to be made if an accounts receivable entry has already been recorded. If cash is received on or after July 1 for revenue that was not recorded in the current fiscal year, please process a revenue accrual. An expense accrual should be made for goods or services provided where the expenditure has not been recorded. Remember an encumbrance is not an expense. Please reference the KFS Payment Processing E-docs page for specific instructions on the timing for PREQ, DV and PCDO. There are two year-end accrual object codes (OC). These object codes should only be used at year-end and reversed in July (of the following fiscal year).
Below is an example of revenue and expense year-end accruals. If using the Year End Distribution of Income and Expense (YEDI) e-doc, enter the entries in the To section and the From section for the reversing entry.
The advantage of using the AV is that it can be scheduled to auto reverse in the next fiscal year. If a YEDI is used, a second entry must be posted in the next fiscal year to reverse the accrual. The reversing entry should be posted in period one (P1) using a Distribution of Income and Expense (DI) e-doc. If a YEDI is used, it is strongly recommended that both entries, the accrual and the reversal, be created at the same time. Please reference the table below for a summary of which e-doc to use and when, and how to use them.
Financial statements are a standardized set of reports that communicate financial information to stakeholders both inside and outside of a company. These statements are important to businesses of all sizes — investors and lenders use them to make decisions, and company managers depend on them as a starting point for business analysis and future budgets — so getting them right is a priority. The challenge for most businesses is how to routinely produce, and for public companies, publish, their financial statements in a timely and efficient manner using the fewest resources. Fortunately, flexible financial software has replaced generating financial statements from leather-bound ledgers, seven-column accounting worksheets and spreadsheet applications. What Is a Financial Statement?Financial statements are reports that summarize a company’s accounting data in a standardized way. They’re meant to enable comparisons over time and with other companies. Each financial statement is a standalone report with a unique purpose, but they are most useful when read together, since they are interrelated. The standard formats and conventions for each statement are included in Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). A public company’s statements must comply with one of those standards, depending on where it is listed. U.S. companies must comply with U.S. GAAP, while in most other countries, IFRS rules apply. Some large public companies choose to produce different editions of their financial statements for each standard. Private companies are freer to adjust financial statements to their business needs, but they usually shouldn’t stray too far from the conventions expected by finance professionals who may someday be reviewing their statements to, for example, determine creditworthiness. Key Takeaways
Financial Statements ExplainedThere are at least five financial statements, three of which are considered “core:” balance sheet, income statement and statement of cash flows.
For publicly-traded companies, a complete set of financial statements also includes a statement of retained earnings and “notes” pertaining to the financial statements. Retained earnings are a company’s accumulated historical profits that have not been paid out to owners, either as distributions or dividends, and are therefore “retained” by the business. The statement of retained earnings, therefore, serves to reconcile any changes in a company’s equity accounts during a reporting period. The notes to the financial statements, sometimes referred to as “footnotes,” is a unique report that provides context to the financial statements, such as accounting methods used and supporting detail for certain balances. Footnotes are most often associated with public filings and audited financial statements. Private companies may choose to produce a subset of these five statements — perhaps just an income statement for use in future planning. If the statements are produced for internal purposes only, there is often no need for footnotes or managers’ explanations. Public companies, however, may be required to publish any number of additional documents beyond these five, such as consolidated schedules and subsidiary schedules. Public companies often include a section called “Management’s Discussion and Analysis,” or MD&A, in which the company’s managers explain complex or nonobvious aspects of the business or business conditions that influenced the results being reported. Why Are Financial Statements Important for Businesses?Financial statements provide a snapshot of a company’s financial situation for use internally and externally. They help internal managers make better-informed decisions and are often a starting place for financial analysis and modeling, especially when viewed comparatively to other fiscal periods or to competitors. Equally important, financial statements serve as a primary information package for external conversations. Lenders, like financial institutions and corporate credit card issuers, require them during the application process and to fulfill ongoing debt covenant requirements. Investors and potential partners use them as a first step in their analyses. Further, the Securities and Exchange Commission (SEC) mandates them for public companies. It’s important to get financial statements right. Most companies have an accounting process that handles preparation of financial statements as part of their financial close process. Advantages of Financial StatementsFinancial statements are a useful way to summarize many key aspects of a company’s financial profile. The three core financial statements neatly present a company’s assets, liabilities, equity, revenue, expenses, profit, sources of cash and uses of cash. Financial statements provide advantages for internal management and external negotiation, and can help companies stay in compliance with other regulations. Internally, financial statements can be a useful decision-making tool for company management. They often serve as a jumping-off point for financial analysis, modeling and forecasting. Externally, the consistency and standardization of financial statements assists lenders’ and investors’ decision-making. When a company needs a loan to fuel expansion, launch a new product or buy more equipment, a lending bank will typically require financial statements. Similarly, suppliers may want to review financial statements before extending credit. And potential investors, whether friends and family, private equity or public markets, will review financial statements as part of their own decision-making. For these reasons, many compliance agencies, like local, state and federal taxing authorities, require financial statements from companies of all sizes, just as the SEC requires them for public companies. Disadvantages of Financial StatementsEven when prepared properly, devoid of fraud and errors, financial statements have disadvantages. Some stem from the technical accounting rules that govern them, such as requirements to use historical costs and ignore inflation, which may cause values on the financial statements to become obsolete over time. For example, the value of a building purchased decades ago would reflect the original acquisition cost minus depreciation, rather than its actual value in the current real estate market. Other technical disadvantages arise when comparing financial statements that cover different time periods, especially for seasonal businesses like retail, or when comparing different companies that choose different accounting methods. Imagine the inconsistencies in a comparison of a retail business’s income statement for the quarter ended December 31 to one ended March 31, or when comparing the statements of a manufacturer that uses last in, first out accounting rules versus another that uses the first in, first out inventory accounting method. Financial statements also have conceptual limitations. By their nature, financial statements reflect only a company’s measurable financial transactions, ignoring certain unquantifiable aspects of its holistic value, like brand recognition, market share or customer satisfaction. Further, financial statements show past results and are not future-looking, which limits their predictive value. 3 Major Types of Financial Statements for BusinessesThe income statement, balance sheet and statement of cash flows — the big three financial statements — each group and categorize information in a way meant to highlight relationships and help readers find relevant details quickly. The income statement and statement of cash flows present activity over a fiscal period, such as a month, quarter or year. The balance sheet can reflect values at any single point in time, but, like the others, the last day of a fiscal period is typically chosen. Most investors, lenders and internal managers view the income statement as most important for measuring success, although all three statements tell an important part of the financial story.
The following chart compares the three core financial statements. The Core 3 Financial Statements Compared
Elements of Financial StatementsAll the accounts in a company’s general ledger ultimately flow into one or more financial statements. Among the most common elements are:
Using Financial Statements in ModelingFinancial modeling has many different purposes but almost always begins with financial statements or data from them. For example, “pro-forma” financial statements are models created for mergers and acquisitions to model what the combined entity might look like using various assumptions about efficiencies and changes. Budget preparation is another example of using financial statements as a template to create a comprehensive model for future fiscal periods. Additionally, many finance teams use financial statements combined with operating data in their forecasting process to identify trends and support projections. Financial Statement AuditingExternal readers of financial statements, like lenders and investors, often require them to be audited because of the statements’ importance in their decision-making. During a financial statement audit, a certified public accountant investigates and tests the statements’ accounting data to provide a “reasonable assurance” that the financial statements are “materially” correct. In the U.S., the Accounting Standards Board (ASB) issues the Generally Accepted Auditing Standards (GAAS) — the rules that guide financial audits. The output of a financial statement audit is the Independent Auditor’s Report, which is meant to provide a level of assurance that the financial statements are free of significant misstatement. But ultimate responsibility for the accuracy of financial statements rests with company management. Free Financial Statement TemplateFinancial statement templates for the income, balance sheet and cash flow statements are provided here. These may be useful for very small companies, but for most businesses, spreadsheet-based financial statements such as these lack sufficient flexibility, automation and information integration. They are supplied with sample numbers for a hypothetical company, which can be replaced with a small business’s own information. Manage Your Financial Statements With SoftwareLarge public companies such as the Fortune 500 tend to have well-resourced accounting departments handling the management of their financial statements and the complex accounting and consolidation issues such organizations face. For smaller businesses, producing and publishing accurate, reliable financial statements often means significant challenges. Studies show that shortages in staff, inadequate accounting expertise, changing regulations and insufficient technology are among the largest obstacles small and midsize organizations face in managing their financial reporting. While financial accounting software can usually generate financial statements, most do not address all these challenges. A solution like NetSuite Financial Management, however, includes features that automate financial statement production with accounting rules built-in, can be customized for an individual business’s needs, and can even integrate information from other systems — all of which address the core of smaller enterprises’ financial statement challenges. Financial statements are important and useful tools for internal management as well as interested external people, such as investors and lenders. The income statement, balance sheet and statement of cash flows are the most important three statements, each with their own purpose and elements. Standardized accounting guidance helps make financial statements useful and consistent across different businesses. But the rules require specialized accounting expertise. Still, producing financial statements that are accurate and auditable are table stakes for most companies. Producing them efficiently with the right level of detail and customization for various stakeholders is a challenge best served by flexible, integrated financial management software. Financial Statements FAQsWhat are the four basic financial statements?The four basic financial statements are the income statement, balance sheet, statement of cash flows and statement of retained earnings. Companies that produce all four generally also produce the fifth: the “notes” to the financial statements. Public companies are required to publish all five. What are the five financial statements?The five basic financial statements are the income statement, balance sheet, statement of cash flows, statement of retained earnings and “notes” to the financial statements. Often referred to as “footnotes,” the notes to the financial statements is a written document that provides context to the financial statements, such as accounting methods used and supporting detail for certain balances. What is the purpose of the three major financial statements?The three main financial statements — the income statement, balance sheet and statement of cash flows — present a standardized summary view of the financial position of a company. How do you do financial statements in accounting?Financial statements follow standard formats to summarize accounting data in a meaningful and intuitive way. They are prepared using standardized formats defined in the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). A certified public accountant may audit financial statements to provide assurance that they are free of material errors and misstatements. What financial statement shows revenue and expenses?The income statement provides an overview of revenues, expenses, net income, and earnings per share.
Which financial statement reports the company's sales for the fiscal period?Profit and Loss (P&L) Statement
A P&L statement, often referred to as the income statement, is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal year or quarter.
Which financial statement would you find the revenue for the period?The income statement is the most common financial statement and shows a company's revenues and total expenses, including noncash accounting, such as depreciation over a period of time.
What is a fiscal year statement?A fiscal year is the twelve-month period over which an entity reports on the activities that appear in its annual financial statements. This period does not have to correspond to the calendar year. For example, a fiscal year might span the period from May 1 to April 30 of the following year.
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