Accounting and analysis of financial results

Jun, 10 2020

Accounting and analysis of financial results are mandatory procedures for enterprises of all legal forms, including LLC. Information on financial results is necessary for comprehensive assessment of the company’s commercial activity. This data is important for owners and executives to make the right management decisions. Moreover, investors, banks, insurance companies and regulatory authorities normally request such information.

The study of financial results allows to evaluate the income of the company. If the financial result is positive, we can talk about the profit of the enterprise. It occurs when income exceeds expenses. The presence of profit indicates effective performance. However, it is important to analyze the dynamics of profit in order to evaluate the performance of the company.

A negative financial result is a loss. It appears when income does not cover expenses, which means that commercial activity is inefficient. Accounting and analysis are designed to evaluate the results of operations, so that the executives can adjust the organization’s operation in time.

The role of accounting in assessing finance

Accounting of financial results is made through several accounts. Their choice depends on the specifics of the activity that generated income or entailed expenses. If you received revenue from the activities specified in the constituent documents, income should be carried out as received from ordinary activities. For all other cases, accounts are provided for “other activities”, which are designed to record the income and expenses associated with procedures that are not common for the company’s work.

Other income may include revenue from investments in securities, positive differences when the exchange rate changes, or surpluses found during the inventory. The same category includes the receipt of debts that have already been written off due to the expiration of the statute of limitations, and similar receipts that are not directly related to the commercial activities of the company.

Other expenses include fines, penalties and other payments that may be charged by regulatory authorities or counterparties. A negative difference falls into the same category due to currency fluctuations or accounts receivable for which the statute of limitations has expired.

There are three main accounts for fixing financial results:

  • 90 “Sales”
  • 91 “Other income and expenses”
  • 99 “Profit and loss”

To take into account other expenses, the specialist needs to carry them out in two accounts: 91 and 99. Firstly the profit from the activity is reflected in the accounting, and then the loss.

Profit accounting

The net profit is reflected at the end of each year on account 84 – it can appear only after the company has already paid taxes. Through this account accounting uncovered losses also pass. The company should distribute profit and use it rationally. Losses are more complicated. How can you cover the financial loss of a company? It can be done from reserve or additional capital, but in some cases the company may attract additional deposits. So, the final financial result is calculated at the end of the year. It is reflected through accounts 99 and 84.

Profit is the goal of any commercial company. Its presence indicates that the work of the enterprise is organized efficiently. However, profit is not enough for the organization to grow. Therefore, it is important not only to take into account financial results, but also to evaluate the efficiency of using profit. The responsibility to determine where the finances will be directed rests with managers. Most often, net profit is used to pay off losses for previous periods, form reserve capital, expand and modernize a business or pay dividends.

Features of the analysis of financial results of the company

Analysis of financial results involves the study of profit and loss in their absolute values ​​and relative ratios. In other words, this is a comprehensive study of when and from what sources the finances go to the accounts and where the company’s funds go.

The financial result is a general term. It covers both the profit that characterizes the activities of the enterprise, and profitability indicators. The difference between the first and second data is that profitability demonstrates how efficiently the company manages its own funds, what costs it incurs. If profit is an absolute value, then profitability is just a relative indicator.

After analyzing the financial results, experts objectively evaluate such important parameters as the investment attractiveness of the organization and the prospects of the business. In other words, the analysis of financial results allows us to assess the company’s position in the market, the possibilities of attracting investors and obtaining loans. The results of a study of profit and profitability of a business can help find additional sources of financing or more rationally distribute available resources.

The main objectives of the analysis of financial results:

  • systematic monitoring of the implementation of sales plans;
  • determination of the influence of objective and subjective factors on the work of the company;
  • search for reserves to increase profits and profitability of the enterprise;
  • development of strategies and ways of using reserves.

The main sources of information in accounting and analysis of financial results are the data of accounting, reporting and tables of the business plan of the enterprise. There are a lot of different ways and methods of financial analysis now. You can order an analytical study from third-party specialists or contact staff members who have the appropriate qualifications.

Author of the article
Accounting and analysis of financial results
Valentina Khlavich
Managing Partner
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