No matter what department you work for within a business, the finance and accounting functions touch every aspect of your role and the organization. For employees that do not work directly in the finance function, it can sometimes be challenging to understand how the financial and accounting concepts and policies affect their daily tasks and department goals.
The financial team within a company generally utilizes the three basic financial statements for managing their business- The balance sheet, the income statement and the statement of cash flows. The balance sheet is a snapshot at a point in time of a company’s assets, liabilities and shareholder’s equity. The income statement reflects the net income of the enterprise- specifically, the company’s total revenue less any costs of goods sold and other expenses for a particular period. Finally, the statement of cash flows reflects how changes in financial statement accounts affect cash in its operating, investing and financing activities. Taken as a whole, the financial statements provide critical information that businesses use to make decisions on a daily basis. Should the company incur more debt? Should it raise more equity? How well are various departments managing inventory and other costs? Where is the company’s cash being used, and how could cash management be improved? The financial statements allow financial professionals within an organization to answer these questions and also plan for the future.
Contributed by Jeffrey M. Brogley, Tax Senior Manager and CPA, member of Deloitte’s Business Tax Services Group.