Comprehensive Resources for Agriculture: Topical Questions, Past Papers, and Answers
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Understanding the Difference between Financial Statements and Financial DocumentsDifferentiate between financial statement and financial document.
Financial Statement and Financial Document are two terms that are often used interchangeably in the business world. However, there are some key differences between the two. Financial Statement: A financial statement is a formal record of the financial activities of a business or an individual. It is typically prepared at the end of the business year and provides a snapshot of the financial position, performance, and cash flows of the entity. Financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and provide a comprehensive view of the financial health of the business. Financial statements include several key components, such as the balance sheet, income statement, statement of cash flows, and statement of changes in equity. These statements are prepared by analyzing the financial transactions and activities of the business, including revenue, expenses, assets, liabilities, and equity. The purpose of financial statements is to provide information to stakeholders, such as investors, creditors, and management, to assess the financial performance and position of the business. They are also used for decision-making, financial analysis, and compliance with regulatory requirements. Financial Document: A financial document, on the other hand, is a document that is issued by a buyer or seller to provide evidence of a legal transaction. It is a written record of a financial transaction, such as a purchase, sale, or payment, and includes details such as the date, amount, parties involved, and terms of the transaction. Financial documents can take various forms, depending on the nature of the transaction. Some common examples of financial documents include invoices, receipts, purchase orders, sales contracts, bank statements, and loan agreements. These documents serve as proof of the financial transaction and are important for record-keeping, auditing, and legal purposes. Unlike financial statements, financial documents are not prepared at the end of the business year and do not provide a comprehensive view of the financial position or performance of the business. Instead, they focus on specific transactions and provide supporting evidence for those transactions. In summary, financial statements are comprehensive reports that provide an overview of the financial health of a business, while financial documents are individual records that serve as evidence of specific financial transactions. Financial statements are prepared at the end of the business year, while financial documents are issued for each transaction.
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