|
Qualities Of Useful Financial Reports
By: Marquez Comelab
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. Reliable
People must depend that the figures and the facts printed on your financial
statements are true. How can you say that 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 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. Conservative
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).
About the Author:
Marquez Comelab is the author of the book: The Part-Time Currency Trader . It is
a guide for men and women interested in trading currencies in the forex market.
Discusses analysis, tools, indicators, trading systems, strategies, discipline
and psychology. See: http://marquezcomelab.com. 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. |
