At the end of each year, companies or businesses must report their activities to their stakeholders. They achieve that through financial reports, also known as financial statements. What is a Financial Report? A financial report, or a financial statement, represents formal records of an entity’s activities. Usually, financial reports represent …

What are Retained Earnings? Retained Earnings represent a company’s accumulated profits that it has not distributed as dividends to its shareholders. These are profits that the company holds to reinvest into its business. Retained earnings are an internal source of capital that it uses for short-term capital needs. These may …

What is the Statement of Cash Flows? The Statement of Cash Flows, also known as Cash Flow Statement, is one of the primary financial statements. It summarizes the amount of the cash and cash equivalents entering and exiting a company or business. The Statement of Cash Flows consists of all …

Companies incur various expenses throughout their operations. Usually, companies must categorize each of them based on several factors. Among these, the most common classification is by nature. Companies may aggregate their expenses of similar nature for various reasons. Usually, companies use expense classifications to present several aspects of their profitability …

What is Net Income? Companies need to be profitable to stay in business. Therefore, they need to ensure their earnings exceed their expenses. Sometimes, it may not stand true. However, in the long run, it is crucial to maintain a positive net income. Companies can calculate their earnings by deducting …

A company’s or business’s net income is one of the most critical line items on its Income Statement. It is a favourite figure for most stakeholders. Through net income, stakeholders can establish a company’s profitability. Similarly, companies may also use the net income figure for various purposes, such as decision-making …

What is an Embedded Derivative? An embedded derivative constitutes a part of a financial instrument that also includes a non-derivative host contract. When a hidden derivative contract exists in a non-derivative host that does not go through the profit and loss account is called an embedded derivative. In an embedded …

The Balance Sheet of a company may consist of several account balances. Companies need to classify these balances as either assets, liabilities, or equity. Each of these represents an element of the financial statement. Among these balances, most companies report Accounts Payable balances on their Balance Sheets. However, there’s often …

A company’s Balance Sheet may show various balances. Companies break up their balances into three categories. These are assets, equity, and liabilities. Each of these represents different aspects of a business. The classification comes as a result of the accounting standards. One balance that often is a part of the …

What is an Audit Report? An audit report is a statement usually presented by the external auditors of a company. The audit report provides the auditor’s opinion regarding whether a company’s financial statements are accurate and fair. In official terms, the audit report comments on whether a company’s financial statements …