An accurate financial statement is important for any business. They include balance sheets, cash flow statement, income statement and shareholders equity statement. All are essential in developing strategies that impact either the success or failure of any business. Even the smallest numbers on a balance sheet have a huge impact on every company. When assets depreciate in value the percentage has to get deducted from the revenues earned To make a report of the revenue earned, it is important to know how much the business is making. Investors and developers get to know how much the business is making by numbers such as profits before and after tax.
Most significantly, the tax rate of corporate is usually high The higher profit, the higher you have to pay for taxes If you don’t have a financial statement, it can be devastating how much you make after paying for taxes. To avoid reduction of resources, you need to have an accurate financial record. Certain companies fudge financial data to avoid paying taxes which once discovered can lead to imprisonment or payment of heavy fines.
Financial statements enable companies to discover errors and avoid costly mistakes. Investors and developers can detect any illegal activities thorough inconsistency in numbers. In case of any errors, there are reconciliation talks to help solve them This is why companies spend a lot of time checking their records of account by confirming each entry to avoid accounting errors.
Additionally, the only way a company can build trust for investors and developers is through an accurate financial record.
They need a good sign that their money is being put into good use It can be devastating to find out that the balance sheet shows profits and later to find out that a company is hiding losses. There are large scale companies such as WorldCom and Enron that were shut down because of presenting fudged financial data. To ensure that companies present accurate financial statements, governments have put in place strict rules on compliance and accounting to avoid the temptation of reporting the wrong financial numbers. Cash from every source of the business is what pays back investors and developers. Financial data is used by investors and developers to know if there are enough funds to sustain the business and how much cash is used in purchasing of assets.
In order to improve payment cycles, financial data plays a major role. Outgoing payment such as daily wages and salaries has to be paid. Dividends have to get paid to investors and developers as well as management of the inventory. This cannot be done if the numbers are not correct. The company needs to be aware of how much interest is paid or received to pay a loan especially if it is overdue. The only way investors and developers can know if their investment is safe and bringing in profits is by use of financial data. The want to know how their money is spent and what it is being used for currently.