Tuesday, May 22, 2012

Main purpose of financial statements and managerial reports?

What is the main purpose of financial statements and managerial reports?

The most important financial statements are the income statement (information over a set period of time), balance sheet (exact point in time) and cash flow statements (information over a period of time).  '

The cash flow statement links the income statement and the balance sheet.  There is the cash accounting method (cash in and cash out) and GAAP (generally accepted accounting principles) accrual-based accounting.

Most small businesses will use cash accounting system and larger companies (complex operations) and, for sure, publically traded companies, use GAAP accounting system.  There is also tax accounting for the IRS, which has different rules and requires an accountant to use separate books.

Overall, managerial reports are designed to answer internal management questions about a company and are only for internal use. Therefore, the most important factor in picking a system for management reports should be considerations to what is important in the business, either quantitavely or qualitatively.

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