There are a number of approaches, all applying numbers and accounting, to establish an opinion for the court and trier of fact to rely upon, which will be covered in part 3 of our series.
Financial reporting is expected to provide information about an enterprise's financial performance with a focus on the financial position, earnings or income, and the cash flows or how cash is utilized during a period. Financial reports are useful for making business and economic decisions. To fully have a handle on financial reporting, you need to know about the accounting information used in financial reporting and the three most common types of financial reports.
Accounting Information Systems
Accounting data, the key to accurate financial reporting, is typically captured and accumulated in the ordinary course of business by recording transactions in accounting software. Every financial transaction results in an accounting entry that is captured in the company’s general ledger, which contains detailed data such as the date, amount, expense type, and a description of each transaction. Examples of transactions that trigger a general ledger entry include supplies purchases, shipments or receipt of goods, sales of goods or services, employee wages and salaries, and many, many more. Amongst smaller businesses, one of the most popular accounting platforms is QuickBooks. Larger businesses utilize enterprise software such as Oracle NetSuite, SAP, or Sage.
Accounting software contains reporting capabilities that utilize the general ledger data to generate financial reports and also includes capabilities to create subledgers (i.e., cash disbursement, cash receipts, payroll, account receivable, etc.). The most commonly referenced reports are the three key financial statements: income statement, balance sheet, and statement of cash flows.
The income statement, or profit and loss statement, represents the results of operations of a given entity over a period of time. What did we earn over the period and what are we on the hook to pay out? The following is an example of an income statement: