Financial statements, what to include? The structure and the role each component business need to know

In business operations, financial statements, not merely as a mandatory procedure for filing for tax authorities or service audit. This is a documentation system fully reflects the “financial picture” of the business in a period of activity: business owns what, how much debt, business performance and cash flow are operating like.

However, in fact, many business owners, operating departments still not have a clear specific structure of financial statements, what to include, each part has meaning, the need to set up how to apply to internal management for efficiency. This leads to the condition reports only to “deal” that miss an opportunity to use financial statements as a tool to support executive decision-making strategy.

In this article Lac Viet Computing will help you:

• Understand the main components of a financial statement
• Distinguished reporting on the circular 133 and 200
• Recognize the practical value of each type of report
• Learn how to apply financial reporting in corporate governance
  Suggestion tool supported analysis report more effective

1. Financial statements what is and why business should care?

1.1 financial statements what is?

Financial reporting is a material system, general accounting, reflecting comprehensive financial condition, results of operations, business, cash flow of the business in a given time period (usually quarterly or annually).

In other words, if for the enterprise as a living body, the financial reporting is health records periodically. It said the business owns what (property), is how much debt (liabilities), efficiency do business (profit or loss), cash flows are operating, stable or not.

Financial statements include multiple components, in which the most common are:

• Balance sheet
• Report results of business activities
• Statements of cash flows
• Notes to financial statements

Each section provides a “perspective” private about the situation enterprise. When combined, they bring to panoramic view help business owners, managers, decision confidence, have the facility.

1.2 any Business need financial reporting?

Under the provisions of Vietnamese law, every business is active legal must prepare financial reports – regardless of large or small scale activities in any field, whether or not listed.

Specific:

• Small and medium business: Apply the accounting circular 133
• Big business, there are audit: Apply in circular 200
• The corporation, FDI, business listing, or have financial transactions complex: report is required periodic financial service audit, banking, shareholder or regulatory bodies

The financial reporting is not only to “comply”, but also to embody professionalism, transparency in business operations.

1.3 Role and actual benefits of financial reporting for business

When used properly, financial reporting is a strategic tool to help enterprise management efficiency, enhance competitiveness. Here are the practical benefits that businesses get:

• Evaluate business performance objectively Just look at the revenue is not enough. Financial statements to help leaders more in-depth analysis of cost, profit, profitability, capital efficiency – from that given timely adjustment.
• Control cash flow and minimize operational risk and Business can interest on paper but cash without tracking cash flow closely. Statements of cash flows helps to manage cash flow in – out, operation guarantee is not interrupted because of lack of liquidity.
• Is service tool loans, auditing, calling for investment Banks, investors, partners will be based on the financial statements to assess the reliability, the financial capacity of the enterprise. A report properly, the correct standard is the “passport” financial help businesses expand cooperation, call capital more favorable.
• Provide the foundation for financial planning – business From data in the report, businesses can budget, plan, profit plan, cash flow, growth-oriented accordance with the actual capacity.

2. Financial statements, what to include? Full structure according to current regulations

A set of financial statements fully reflect the comprehensive financial status, business performance and cash flow of the business. According to current regulations (circular 133 and circular 200 of the Ministry of Finance), financial statement consists of 4 or 5 main ingredients, depending on the scale of business and accounting application.

2.1 the balance Sheet – Reflect the assets and capital of the business

The balance sheet is a financial report general expressed the situation of property, sources of formation of property of the enterprise at a certain time (end of the accounting period). This report is divided into two parts symmetrically:

• The property: indicates the total value of that business is holding – including short-term assets (cash, inventory, accounts receivable...), long-term assets (machinery and equipment, real estate, long-term investment...).
• The capital (also called source assets): Include liabilities (loans, debts, suppliers...), equity (capital of business owners, retained earnings...).

For example illustrated easy to understand: A manufacturing enterprise are:

• Property: 2 billion, consisting of 500 million, 700 million inventory, 800 million as factories and machinery.
• Source of capital: 1-billion loan bank, 1 billion as capital contribution from business owners.

Here, the balance sheet will reflect: Total assets = Total liabilities = $ 2 trillion.

Practical value the business receives:

• Understand the financial structure at present: Businesses are more dependent on debt or equity capital? Have enough assets to rotate capital or not?
• Decisions based on the basis of specific financial: There should invest more in fixed assets not? Need to cut property is not effective or renegotiate the loan?
• Enhance accessibility of capital: A balance sheet, clear healthy will help your business easily access financing from banks or investors.

2.2 report the results of business activities – Measuring efficiency, create profits

If the balance sheet to know the business “is nothing”, it reports the results of operations, business, said the business “is how do you do”. This is a consolidated report on all of the revenue, cost and profit of the business during an accounting period (usually quarterly or annually).

Structure reports typically include:

• Net sales: Total sales after deducting deductions (discount, sales returns...)
• Cost of goods sold: direct Costs to produce goods or provide services
• Gross profit = net Sales – cost of
• Operational costs: Including cost of sales, cost management, business
• Net profit from business activity: Reflect the main result from manufacturing operations – core business
• Income and other expenses (if any): as interest from investments, loss on disposal of assets
• Profit after tax: profit eventually left after deducting corporate income tax

Illustrative example: A business that has net sales of 10 billion cost of 6 billion, cost, sales management, 2 billion. Net profit from business operations is 2 billion, after taxes, is also 1.6 billion profit after tax.

Practical value the business receives:

• Determine the effectiveness for each term business: There is profit or loss? Profits come from nowhere – main activities or other income?
• Cost analysis: items which are consuming the largest budget, there are optimal is not?
• Financial planning, growth-oriented: From this report, businesses can budgeting, forecasting, profit, identify development goals reality.

2.3 statements of cash flows – track and manage cash flow

Statements of cash flows as wall art detailed cash flow “fact” that the business received and expenditures during the period. This is one of the most important reports but is often overlooked or not been analyzed properly.

This report divided the money flow into 3 groups:

• Cash flow from operations: As the proceeds of the sale, pay salaries, pay suppliers, pay taxes...
• Cash flow from investing activities: such As shopping, machinery, long-term investment, or liquidation of fixed assets.
• Cash flow from financing activities: such As loan principal repayment, issuance of shares, dividend.

Illustrative example: the Enterprise are:

• Cash receipts from customers: 8 billion
• Cash paid to suppliers and operating costs: 6 billion
• Buying new machinery: 2 billion
• More loan bank: 1 billion

 => Cash flow net in the states = +1 billion

Practical value the business receives:

• Early detection of risk cash flow: Whether the business can interest on the books, but if you do not have cash enough is used, all operations are stalled.
• Liquidity management better: active balance income and expenditure, avoid falling into the shortage of cash, especially at the time of payment of the debt due.
• Servicing loans efficiently: Bank special attention to the cash flow of the business when reviewing loan documents.

2.4 notes to financial statements – clarification of the financial picture hidden figures

If for financial reporting as a “map” the financing of business, the notes to financial statements is the “detailed annotations” help the reader understand the meaning and origin of the individual indicators on the map.

Other than the table data is presented in brief the role to explain the figures, presented accounting policies applied, provides more qualitative information, quantitative that the tables don't do them. This is also the part that auditors, investors, bank of particular interest when assessing the transparency and reliability of financial statements.

Main content often included in notes to financial statements includes:

• General information of business: industry activity, form of organization, accounting period, the unit of currency used.
• Accounting policies applied: the method of revenue recognition, how to calculate the price of capital, depreciation method of fixed assets, evaluate inventory, record prepaid expenses, reserves for liabilities...
• Detailed items large: explain the item has a high value as long-term loans, financial investments, prepaid expenses, long-term unearned revenue...
• Overs each indicator on the balance sheet accounting and reporting business results and statements of cash flows: for example, details of the item receivable and payable, interest income, finance, tax, corporate income tax...

For example illustrated easy to understand:

On the balance sheet recorded “fixed Assets: 5 billion”. In the business will clearly explain: it is factory 3 billion, machinery and equipment 1.5 billion, truck shipping 500 million. At the same time stated depreciation method: linear 10 years, has depreciated 3 years.

Actual benefits businesses get:

• Increase the transparency and credibility: Especially important when working with auditors, tax authorities, or investors – who need to know “numbers come from, where is”.
• Reduce the risk of errors or misunderstood: interpreting accounting policy will clearly help businesses protect is way recorded've done, avoid arguing about the legal side.
• Support in-depth analysis: notes to provide context to help the reader assess the true risks and potential financial reality.

2.5 balance Sheet accounts – check tool, collate and manage books effectively

Balance sheet account is a report internal accounting reflects the balance of the first states arose in the period, ending balance of each account accounting. This is not a report presented to investors or the public, which mainly serves for the inspection, collated, complete bookkeeping.

As a rule, the balance sheet accounts only mandatory with the business applying circular 200, usually business to have large-scale public company, or the company has requested an independent audit.

The main structure of the balance sheet accounts:

• Account accounting: as 111 (cash), 131 (customer receivables), 331 (must be paid by the seller), 642 (cost management business)...
• Balance beginning of the period: the number exists at the time of the beginning of the period
• Arising in the states: show the recorded increase – decrease in each account
• Final balance: is the final result after subtraction between the beginning balance and incurred in the period

For example illustrated easy to understand:

Account 131 – customer receivables:

• Balance beginning of the period: 1 billion
• Arising added: 3 billion (sales in states)
• Arising reduction: 2 billion (pay)
• Final balance: 2 billion (still receivable)

Actual benefits businesses get:

• Collated data book easy: Help chief accountants detect deviations, accounting, teen or confusion before reporting financial official.
• Control transparency, internally: Is tool serves cross-check, to help minimize fraudulent or omission of the transaction.
• Prepare for audit or financial inspector: When auditors or tax authorities for screening each account, balance sheet account is clear evidence to prove the accuracy of the item.

3. Financial statements not only to “file” – taking advantage to effectively manage

3.1 analysis from financial statements: Turn numbers into strategy

Many businesses today are only set of financial statements to “complete” with the tax authority or audit, but have yet to tap into this report as a strategic tool to run the business. Fact, if you know how to read, analyze financial statements, managers can make decisions quickly and more accurately.

For example:

• Analysis of the ratio of gross profit to help get to know what products are good words, from that preferred to invest or promote.
• Compare management costs/net revenue between the states showed the ability to control the machine operation is effective or not.
• Track inventory turnover reflects sales ability and speed, convert goods into cash.

Value bring to a business:

• Properly understand the strengths and weaknesses of finance and business.
• Proactively build strategic price, cost strategy or investment property match.
• Increased ability to survive, grow in terms of market fluctuations.

3.2 tracking cash flow, reduce operational risk and imbalance cost

Profit is not synonymous with positive cash flow. Many business report interest, but do not have enough money to pay salaries or payment of the public debt because of negative cash flow. Statements of cash flows helps businesses control cash flow fact, identification, warning the risk of losing balance cash flow.

For example: If the proceeds from the operations, business continuity, lower spending, businesses can fall into a state of “overspending cash,” although the reported results of the business is still profitable.

Values bring:

• Liquidity management better, avoid off cash flow.
• Planned to pay salaries, loan debt, tax due date.
• Easily adjust plans shopping, investment, if the current cash flow risks.

3.3 Use financial statements to obtain loans, call capital and attract investors

A set of financial statements clear, transparent, set the correct standard is the “key” to business approach, the external financing from banks to the investment strategy.

• The bank will be based on the financial statements to assess the likelihood of repayment, cash flow, real and the level of financial security before approving the loan.
• Investors do need a transparency report to assess the profitability, capital efficiency, level of risk, potential growth of the business.

Enterprise value received:

• Increase your chances of being approved loan application, or call capital.
• Enhance the confidence of shareholders, strategic partners.
• The way to IPO or scale in the future.

4. Support tools set up and analyze financial statements effectively

4.1 Use accounting software for automatic synthesis report

Instead of preparing financial statements using Excel with many risks, errors, businesses today can apply the accounting software as AccNet or LV-DX Accounting to automate the process of reporting.

Benefits highlights:

• Data were aggregated automatically from the subsystem accounting (purchase, sales, stock, cash...).
• Report form is updated according to the standard circular 133 or 200.
• Reduce errors, save time, increase accuracy when filing a report to the tax authority or audit.

Values bring:

• Small and medium enterprises can standardize reporting system easily.
• Board of directors can fast track financial situation with just a few taps.
• Suit all industries, including business no accounting team strong.

4.2 application artificial intelligence with LV Financial AI Agent

LV Financial AI Agent is tools of financial analysis app AI (artificial intelligence) is developed to support the management, non-intensive financial can still understand, efficient use of financial statements.

Feature highlights:

• Automatic calculation, analysis of financial indicators as important as ROA, ROE, payment rates, effective use of capital, profitability by product or unit.
• Warning indicators of anomalies: cash flow negative, debt increase high profit margin decreased...
• Hint strategic action: adjust the cost structure, cash flow, or orientation raising capital.

Understanding financial statements, what to include to help businesses comply with accounting regulations, open up opportunity management, business development in a scientific way. Each type of report – from the balance sheet, the statement of the business to cash flow – was in the core information help managers see the financial situation, control the flow of money, make a decision at the right time. Business as using financial statements as a strategic tool, then as enhanced competitiveness, attract investment, sustainable growth.