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Main accounting statements: what is the function and importance of each one?
Have you ever wondered how successful companies manage their finances? The answer lies in their financial statements.
But do you know what they do and why they are important to the business management?
Financial statements are essential to effectively manage a business.
They give a clear view of the financial performance. This helps in making strategic decisions.
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They also ensure transparency for managers, investors and other stakeholders.
This allows you to compare results from different periods.
This makes it possible to assess the company’s growth.
According to Law 6,404/76, the disclosure of these documents is mandatory.
This is especially true for publicly traded companies.
IBRACON defines accounting statements as a monetary representation of the equity and financial position on a specific date.
They also represent transactions carried out by an entity during a period ended.
In this article, we will explore the main accounting statements.
Let's understand their specific functions and the importance of each one for the business management.
Main Conclusions
- Financial statements are essential for the effective management of a business.
- They provide transparency for managers, investors and other stakeholders.
- Its disclosure is mandatory for publicly traded companies, according to Law 6,404/76.
- The Balance Sheet, Income Statement, Financial Statements and Financial Statements are fundamental for the financial analysis of the company.
- Explanatory notes complement the accounting statements, offering greater clarity.
What are Financial Statements?
Financial statements are reports that show a company's finances.
They detail assets, liabilities, income and expenses. This helps to understand the financial health of the company.
According to Law No. 6,404/76, these reports are mandatory for joint stock companies.
They are essential for economic analysis.
| Document | Description |
|---|---|
| Balance Sheet (BS) | Shows assets, liabilities and net worth, important to evaluate the financial health. |
| Income Statement (IS) | Analyzes profit or loss, showing revenue and costs. |
| Statement of Cash Flows (DFC) | Details cash inflows and outflows, by cash regime. |
| Demonstration of Mutations of Net worth (DMPL) | Records changes in net worth during the period. |
| Explanatory Notes | They complement the statements, promoting transparency. |
| Demonstration of Profits or Accumulated Losses (DLPA) | Shows changes in equity related to profits or losses. |
| Statement of Added Value (DVA) | Reveals the distribution of wealth among employees, suppliers and shareholders. |
Accounting documents are essential for managing a company's finances.
They help maintain transparency with investors. Law No. 6,404/76 establishes standards for these reports.
It is recommended that managers check this data regularly. This helps to make better decisions.
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Objectives of Financial Statements
Financial reporting has several purposes.
They show a company's financial situation, economic performance and cash flows.
These documents are essential for management, as they allow decisions to be made based on real data.
This transparency helps not only managers, but also partners and investors.
They can better assess and plan the company's future.
For public limited companies, there are mandatory financial statements. They include:
| Demo Type | Description |
|---|---|
| Balance Sheet (BS) | It shows assets, liabilities and equity. This helps to see the financial strength. |
| Income Statement (IS) | Features recipes, expenses and net profit. Generally, it is for one year. |
| Statement of Comprehensive Income (DRA) | Shows financial gains beyond net income, such as actuarial gains. |
| Statement of Changes in Equity (DMPL) | Explains changes in net worth. Includes investments and distributions of profits. |
| Demonstration of Cash flow (DFC) | Details financial inflows and outflows. Separates operations, investments and financing. |
| Explanatory Notes (NE) | Explains the financial statements. Details accounting policies and subsequent events. |
For small and medium-sized businesses, mandatory reporting is different.
They include Balance Sheet, Income Statement and Explanatory Notes. The DVA is optional for these companies.
A study showed that 871% of managers consider financial statements essential.
They directly influence the financial performance of the company.
Therefore, managerial use of these documents is crucial to success.
Financial statements: The Balance Sheet
The Balance Sheet is a crucial document that shows what a company owns, what it owes, and its net worth.
It details the active, the passive and the net worth of the company.
This information is essential to understand the financial health of the company.
To understand the balance sheet, it is important to know its three main parts: active, passive and net worth.
Law 6,404/76 requires companies with shareholders to present these statements.
They usually cover 12 months, but it is recommended to have monthly follow-ups.
| Category | Description |
|---|---|
| Active Current | Assets that can be converted to cash quickly, such as cash, inventory, and accounts receivable. |
| Active Non-Current | Assets and rights that take longer to turn into money, such as investments and fixed assets. |
| Passive Current | Obligations that are due in less than a year, such as suppliers and taxes. |
| Passive Non-Current | Obligations that mature in more than one year, such as long-term loans. |
The basic balance sheet formula is: Assets = Liabilities + Equity.
For example, a company with R$ 200 thousand in assets and R$ 80 thousand in liabilities would have a net worth of R$ 120 thousand.
This shows the company's net wealth, which is important for investors and managers.
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Income Statement (IS)
DRE Components Description Sales Revenue Total value of sales made Deductions and Taxes Applicable taxes and deductions Net Revenue Gross Revenue minus taxes and deductions CPV/CMV Costs involved in the purchase/sale of the merchandise or service.
Gross Margin Net Revenue minus Variable Costs Expenses Variables Expenses related to the operation Contribution Margin Gross Margin minus Variable Expenses Personnel Expenses.
Employee expenses Operating expenses Expenses necessary for the operation EBITDA Earnings before taxes, interest.
Depreciation and amortization Results before IRPJ and CSLL Important indicator in the Income Statement IRPJ and CSLL Taxes due or payable Net Result Result after all income and expenses
Statement of Cash Flows (DFC)
THE Statement of Cash Flows (DFC) is essential for managing money.
It shows the inflows and outflows of money over a period of time. This includes everything from daily operations to investments and financing, helping with the financial health of companies.
For example, in one period, cash inflows were R$286,000.
The outputs were R$184,000. This resulted in a cash flow positive of R$75,000.
Administrative expenses were R$10,000, prepaid expenses R$2,000 and taxes R$15,000.
Investment activities are also important.
The company increased the value of the machines by R$50,000 to R$100,000.
This resulted in a cash outflow of R$50,000. The value of the vehicles decreased by R$20,000, generating a cash inflow of R$20,000.
Financing activities are also crucial.
There were cash outflows of R$40,000 and inflows of R$30,000. This resulted in a cash flow negative of R$30,000.
Payments of financial expenses were R$8,000, and dividends R$12,000.
On completion, the beginning cash balance was R$30,000. The ending balance was R$45,000.
These results show the importance of DFC in cash management.
It helps in making strategic decisions, maintaining liquidity and planning future investments.
Statement of Changes in Equity (DMPL)
The Statement of Changes in Equity (DMPL) helps to understand the financial changes in a company.
It shows how net worth changes throughout the year.
This documentation is important for the Securities and Exchange Commission (CVM).
According to instruction no. 59/1986, the DMPL shows all the financial changes.
It runs from the beginning to the end of the financial year.
Transactions are listed in columns that correspond to the accounts in the net worth.
| Category | Value |
|---|---|
| Initial Share Capital | R$300.000 |
| Capital Reserve | R$50.000 |
| Initial Loss | R$20.000 |
| Net Profit for the Year | R$148.600 |
| Legal Reserve (5%) | R$6.430 |
| Contingency Reserve (20%) | R$25.720 |
| Dividends Distributed (50%) | R$48.225 |
| Statutory Reserve (30%) | R$38.580 |
| Remaining Amount after Reservations | R$9.645 |
That resource management detailed is essential for companies.
It helps to understand the financial health of the company. The DMPL shows how profits are divided and reserves are made.
Companies with net worth above R$ 2 million need the Cash Flow Statement (DFC). The DMPL is more than a rule.
It is an important tool for good financial management.
Explanatory Notes in Financial Statements
Explanatory notes are essential for financial statements.
They offer accounting transparency and clarify non-obvious information in financial reports.
Publicly traded companies must include these notes in their financial statements.
This is required by Art. 176 of Law 6,404/76.
They complement important reports such as the Balance Sheet (BS), the Income Statement (IS) and the Cash Flow Statement (CFS).
To the explanatory notes contain important details.
They explain how assets are valued and the criteria for increases in value.
They also detail depreciation, investments in other companies and events that affect the company's financial situation.
For financial analysts and investors, understanding these practices is crucial.
Explanatory notes show past adjustments and may reveal activities that affect future profitability.
Furthermore, the explanatory notes must follow specific rules.
Each item must be numbered and referenced on the statement.
This helps you locate and understand information better.
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Financial statements: Conclusion
Financial statements are much more than laws.
They are essential to understanding a company's finances.
The Balance Sheet shows the company's financial situation at a given point in time.
It reveals assets, liabilities and net worth.
The Income Statement (IS) shows how the company performed financially.
It shows income, expenses and profit over a year.
The Statement of Cash Flows (SCF) details cash inflows and outflows.
This helps to see if the company has the money to pay its debts.
The Statement of Changes in Equity (DMPL) explains the changes in the company's equity.
It includes share capital, reserves and profits.
With this information, it is possible to better analyze the company.
They help you make important decisions and plan for the future.
Maintaining transparency with these documents is crucial.
This helps the company grow and succeed in the long run.
