Accounting and analysis of financial results
- The role of accounting in the assessment of finance
- Accounting for the use of profits
- Features of the analysis of the company’s financial results
- The main objectives of the analysis of financial results
Accounting and analysis of financial results are mandatory procedures for enterprises of all forms of management, including LLC. Information about financial results is necessary for an objective and comprehensive assessment of the company’s business activities. This information is necessary for owners and managers to make the right management decisions. In addition, they are requested by investors, banks, insurance companies and, of course, regulatory authorities.
The study of financial results allows us to judge the company’s income. 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 activity. However, it is important to analyze the dynamics of profit in order to assess the effectiveness 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 just designed to evaluate the results of activities so that management can adjust the work of the organization in time.
The role of accounting in the assessment of finance
Accounting of financial results is carried out through several accounts. Their choice depends on the specifics of the activity that brought income or entailed expenses. If you have received revenue from the activities specified in the constituent documents, the income should be treated as received from ordinary activities. For all other cases, “other activities” accounts are provided, which are designed to record income and expenses related to procedures that are not typical for the company’s work.
Other income may be income from the investment of securities, positive differences when the exchange rate changes, or surpluses detected during 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 can be collected by regulatory authorities or counterparties. A negative difference due to currency fluctuations or accounts receivable for which the statute of limitations has expired falls into the same category.
There are three main accounts for recording financial results:
- 90 “Sales”;
- 91 “Other income and expenses”;
- 99 “Profit and loss”.
In order to take into account other expenses, the specialist needs to spend them on two accounts: 91 and 99. That is, first the profit from the activity is reflected in the accounting, and then the loss.
Accounting for the use of profits
The so–called net profit is reflected at the end of each year on account 84 – it can appear only after the company has already paid taxes. Uncovered losses are accounted for through the same account. The company should distribute the profit and use it rationally. With losses, things are more complicated. How can the company’s financial losses be covered? This is done from reserve or additional capital, but in some cases the company can 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 quite efficiently. However, the profit itself is not enough for the organization to develop. Therefore, it is important not only to take into account financial results, but also to evaluate the efficiency of profit use. The responsibility to determine where the finances will be directed falls on the managers. Most often, net profit is used to repay losses for previous periods, form reserve capital, expand and modernize the business or pay dividends.
Features of the analysis of the company’s financial results
The analysis of financial results implies the study of profit and loss in their absolute values and relative coefficients. In other words, this is a comprehensive study of when and from what sources finances come to the accounts and where the company’s funds go.
Financial result is a generalizing term. It covers both profit, which characterizes the company’s activities, and profitability indicators. The difference between the first and second data is that profitability demonstrates how effectively the company manages its own funds, what costs it has. If profit is an absolute value, then profitability is just a relative indicator.
After analyzing the financial results, experts objectively assess 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 you to assess the company’s position in the market, the possibility of attracting investors and obtaining loans. The results of the study of the profit and profitability of the business can help to find additional sources of financing or to allocate available resources more rationally.
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 the profit and profitability of the enterprise;
- development of strategies and ways to use reserves.
The main sources of information for accounting and analysis of financial results are accounting data, reporting and tables of the business plan of the enterprise. Now a large number of different methods and methods of financial analysis are used. You can order an analytical study from third-party specialists or contact full-time employees with suitable qualifications.