Important of balance sheet vs financial statement
The financial performance evaluation of a company relies on essential documents such as balance sheets and financial statements.
However, there are significant distinctions between these two documents because they serve different purposes. Knowing the differences between financial statements and balance sheets can provide insights into how businesses structure and monitor their financial status.
It is essential for finance professionals and other employees who analyze these documents to comprehend these differences by analyzing both of it, stakeholders can gain a more complete understanding of a company's financial health and make informed decisions regarding investments, lending, and other financial activities.
Knowing clearly financial report is essential for finance professionals
What are financial statements?
A financial statement is a record that summarizes a company's financial position, including its profits and expenses, usually period of time, or a quarter or a year. Regardless of its size or industry, every business creates and employs financial statements.
Various individuals use financial statements, including employees who analyze their company's profitability and efficiency. These statements help them to compare their performance with that of other firms in the same industry.
Investors also utilize financial statements to assess how well a company is managing its financial contributions, while creditors rely on them when businesses apply for loans to determine if the business can make the required repayments.
People often use the term "financial statement" for each individual part of it. However, that's not the case. Each section of a financial statement has its own name, and this helps accountants avoid confusion between different types of financial statements. It is important to recognize this common mistake and verify whether the person is referring to the complete financial statement or only a specific section of the document.
A financial statement is a record that summarizes a company's financial position
What are balance sheet
The balance sheet is an important component of the annual financial statement. It provides a detailed account of what a company owes and what it owns. The balance sheet is closely related to the annual financial statement, as it reflects all of the company's activities during the past fiscal period
Companies utilize balance sheets to evaluate their spending, resources and liabilities. As part of their evaluation of a company's financial statements, investors and creditors also analyze company financial statements.
The balance sheet is an important component of the annual financial statement
Differences between balance sheet vs financial statement
Criteria | Financial statement | Balance sheet |
Objective | Disclosing the overall financial condition of the company. | Present a summary of a company's assets and liabilities |
Content | Balance sheet, Income statement, | Assets, Liabilities, Shareholder equity |
Length |
Containing balance sheet and more reports so it will take longer to prepare | Since a balance sheet is only a component of a financial statement, it is a relatively brief document. It contains fewer data and therefore requires less time to create and review. |
Stage of creation | Final stage | Anytime but must be done before creating the financial statement |
Understanding | Referring to either an entire financial report or any of its individual sections | Specific and easily understood because of its same components and objectives. |
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