Why do traditional financial statements not meet all of the questions?

May 25, 2018 | By admin4u | Filed in: Uncategorized.

Integrated understanding of all three elements of the financial statement – income statement, balance sheet and cash flow statement is required to understand the operations of each business. Gains or losses refer to a period in the income statement. The balance sheet reports the financial position of the business at any time; what the business attaches to and what it belongs to. The cash flow statement, on the other hand, monitors the movement of cash in the business, answering questions such as issues contributing to cash inflows and cash outflow. The three statements should not be treated as individual silos, but the relations between statements must be understood.

Let's look at some connections. Sales revenue is shown in the income statement as sales for that period. Receivables appear on the balance sheet, indicating the value of the receivables on a given day. Receivables are amounts payable by business customers. Businesses sell their loans. If all sales for a given period cease to be customer loans, the deal may have a cash outflow position. A cash situation occurs when an enterprise is unable to meet its cash obligations. So technically, an enterprise can make a big profit, but if debt is not collected, it can go bankrupt. In some cases, reverse may also be true. The business can purchase products that it sells by credit, sell its customers in cash or by credit card, and only pay their sellers after the customer's earnings are realized.

The manager's job is therefore triple. You can make good profits, reflecting a growing profitability percentage and increased market share. Check the tools and resources and keep them in a relatively stable position – it's different from industry to industry, from business to business. Finally, to ensure that there are no cash payments and the business is able to carry out its ongoing cash obligations.

Therefore, understanding relationships is essential for a business leader to maximize income and optimize assets

Source by Easwar Koovappadi


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