Financial Statements Used By A Commercial Business Essay
In this assignment I am going to be looking at the financial statements used by a commercial business. I will be explaining the key compartment parts of the income statement of a commercial business and making a clear distinction between gross and net profit. I am going to be covering both the trading account and the profit and loss account and explain the difference between the two.
I am then going to give examples of the key component parts of the statement of financial position of a commercial company. I am going to cover the balance sheet and provide an example along with a full explanation of all the financial terms used.
Financial statements are a collection of reports that outline the financial activities of an organisation. They usually include income statements, balance sheets, statements of retained earnings, cash flows and other possible statements. It is useful for a business to use financial statements because it determines their ability to generate cash, whether they have the capability to pay their debts back, tracks financial results on a trend line to spot any forthcoming profitability issues, develops financial ratios from the statements that can indicate the condition of the business and investigates the details of business transactions as outlined in the disclosures that accompany the statements. They are essential for businesses as they ensure accurate and honest accounting for them. Financial…