Qualities Of Useful Financial Reports

Qualities Of Useful Financial Reports

Qualities Of Useful Financial Reports
As an​ entrepreneur, planning and implementing the accounting system of​ the business that you hope is​ going to​ make you money, it​ is​ important that your accounting system must produce information that are going to​ be useful to​ you and to​ those who are reading it .​
How do you do this? Information that a​ business is​ expected to​ present must be:
1 .​
Understandable .​
Naturally the information produced must be understandable .​
a​ guideline is​ to​ provide information that people, who are willing to​ understand it, can understand it: professionals or​ nonprofessionals .​
As a​ business owner, you have to​ think of​ the different accounting backgrounds of​ the different types of​ people who will be reading your reports and match that accordingly .​
2 .​
Relevant & Material
Relevance is​ the capacity of​ information to​ make a​ difference in​ a​ decision .​
It is​ important to​ report and disclose information that is​ relevant for anyone to​ make a​ decision .​
Accounting information must also deal with things that are significant enough to​ impact decisions that are made by those who use your financial reports .​
3 .​
People must depend that the figures and the facts printed on your financial statements are true .​
How can you say that an​ information is​ reliable? It must be verifiable .​
Free from error .​
E.g .​
you can always look at​ a​ receipt to​ verify the amount of​ an​ expense .​
As you already know, when you get audited, you must verify all transactions that occurred in​ your business anyway .​
4 .​
Comparable & Consistent
Comparability relates to​ the ability of​ an​ information to​ be compared with those of​ other similar companies so that decision-makers can compare 'apples to​ apples' not 'apples to​ oranges' .​
However, Generally Accepted Accounting Principles (GAAP) allow for certain choices of​ different accounting methods for depreciation and inventory management .​
5 .​
This applies mostly in​ situations where there is​ uncertainty of​ an​ outcome but you have to​ estimate what this outcome might be .​
The key is​ to​ choose the less pessimistic estimate .​
Of course this may not always be a​ wise decision if​ the chances of​ the less pessimistic estimate is​ very minute as​ opposed to​ the other choice(s) .​
This article was written for OrangesAndLime.com, to​ help creative individuals — artists, musicians, designers, illustrators and entertainers — build their own freelance businesses .​
Please note that this article serves as​ a​ guideline only .​
You should still seek professional advice regarding the matter because laws and practices change over time and they differ from country to​ country.

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