Previously we talked about the purpose of ledger accounts, where we define them as a means to reach the financial or accounting statements of the company, in this blog post we will talk to you exactly about it, what are the financial statements, their classification, their importance and how to analyze them.
What are financial statements?
Financial statements are logical groupers of accounts, we call financial statements a report where the accounts are grouped together, they are of an economic nature and provide information on the finances of the company.
Financial statements classifications
Elementary or basic financial statements
- Balance sheet
This state shows us the situation of the equity equation. In another way, it is a photograph at a given moment in the trajectory of the company, of how its assets are, its liabilities, and Owner’s equity. The balance sheet determines the current situation and is updated after each accounting close by the company.
With a balance sheet, you can compare the current state of the company against a balance sheet on the same day or at the same month-end of the previous year.
- Income Statements
An statement that shows those accounts that represent the income, costs, and expenses that the company has as a result of economic activity in a certain fiscal period. It is a statement that only shows the accounts that accumulate results.
An income statement is a performance statement, of the profitability that is emerging due to the commercial activity of the company.
Secondary financial statements
- Statement of Changes in Equity
In this state, it is reported how the equity went from point A to point B. Typically, it is done from the close of a fiscal period to the close of another fiscal period. It is done for periods of time, but it is based on the changes suffered by the equity accounts.
The objective of this statement is to determine the changes that have occurred in the equity accounts of the company in a certain period so that the shareholders or owners of the company can make decisions.
- The cash flow statement
The objective of this statement is to analyze the origin and use of the company's cash funds. It assists in the preparation of budgets and in predicting future risk situations that could occur in the company.
Importance of financial statements
The importance of the statements is that they allow you to see logically the accounts grouped by classifications. The financial statements (both the elementary statements and the secondary statements) are the basis of financial management at the managerial level, and thanks to them the board of directors can determine the way forward to lead the company to the economic growth of the organization.
The financial statements, in addition to serving for decision-making, also become a fundamental part to demonstrate solvency, it can be before creditors or banking entities.
The most important part of financial statements is: How do they affect the actions of companies?
The financial statements are not the end of the road, they are not an end in themselves, they are an input to make decisions, the important thing about them is the totals and their correlation, the correlation of subtotals and totals of the financial statements is to do financial analysis, the statements are a means to get to what really gives you decisive input: financial analysis.
How does an ERP benefit in the matter of financial statements of a company?
Odoo financial statements
One of the great benefits of Odoo is that it allows you to generate a state whenever you need it (as long as you have the historical data), it also allows you to compare values in any of the states between time periods (Up to 12 periods prior to the date of the report), it's just a matter of having everything very well organized.
Odoo, in addition to allowing you to create specific reports for the country that is installed in the system, gives you the possibility of making generic statuses and dynamic reports that are available in all countries:
Balance sheet
Profit and loss
Chart of Accounts
Executive Summary
General Ledger
Old Accounts Payable
Old Accounts Receivable
Cash flow statement
Tax Report
Bank reconciliation
In addition, it makes it easy for you to comment on each report and print them to inform management. Export to a spreadsheet to perform extra analysis and allow you to review the breakdown of reports or statuses to see in detail.
Financial statements are an important input for decision-making, maintaining order in your accounts, as well as knowing the objective of each statement and how to analyze it will provide you with a completely comprehensive knowledge of how your company is doing.