Entrepreneur's Handbook
FINANCIAL REPORTING AND FINANCIAL MANAGEMENT
The accounting information system, which deals with the financial transactions of the enterprise owned by the entrepreneur, provides information to business stakeholders who need financial information with the help of financial statements in order to meet this need. Accounting information required for financial management can be accessed through financial statements.
1.1. Accounting Financial Reporting Relationship
"Accounting is an information system that produces information that explains the formation of the resources of an organization, the way of using these resources, the increase or decrease in these resources as a result of the operations of the organization, and the financial situation of the organization and transmits them to the relevant persons and organizations" (Sevilengül, 2005, s.9).
According to another definition; It is a financial art that classifies events with a “financial” character by expressing them in their currency, records them in chronological order, reports and interprets these reports. According to this definition, the reporting function fulfilled by accounting creates the concept of financial statements. (Akdoğan and Tenker, 2007, s.3).
The accounting system starts with documents based on financial transactions as input within a process, and produces financial statements as output. With accounting, these documents are recorded in the journal and the function of collecting and recording is fulfilled, while these records are transferred to the ledger books and recorded on the basis of accounts and the classification function is performed. Then, after the preparation of the general trial and final trial balance, the financial statements are prepared and the reporting function is fulfilled, and finally, the interpretation function is performed by interpreting these reports.
"Financial statements are tools that allow the information recorded and collected in the accounting system to be communicated to those who will use this information at certain time intervals." (Akdoğan and Tenker, 2007, s.4). In other words, information generated by accounting is presented to users of financial information with the help of financial statements. The basic set of financial statements can be listed as follows¹;
- Balance Sheet (Statement of Financial Position)
- Income Statement (Financial Performance Statement)
- Cash Flow Statement
- Equity Change Statement
- Footnotes
1.1.1. Balance Sheet (Statement of Financial Position)
The Balance Sheet, also called the Statement of Financial Position, is the name given to the table that shows the assets (called active) and their sources (called liabilities) owned by the enterprise. Due to its nature, this table is stable and reflects the financial status of the company at the financial reporting date. In other words, "the balance sheet (statement of financial position) reveals the financial status of an enterprise prepared according to generally accepted accounting principles at a certain point in time." (Akdoğan and Aydın, 1987, s.100).
The statement of financial position (balance sheet) is basically divided into two parts. The active part is divided into two as current and fixed assets in terms of the rate of conversion to liquidity, while the liabilities part is classified as short and long term liabilities and equity. Since each asset is based on a resource, there is balance sheet equality in accounting. This equation is as follows.
When a balance sheet is prepared in accordance with certain principles, it provides useful information about the financial situation of the enterprise as a result of a brief examination. (Akdoğan and Tenker, 2007, s.72).
1.1.2. Income Statement (Financial Performance Statement)
“Income statement reveals revenues, expenses, non-operating earnings and losses and net profit or loss within a certain period” (Akdoğan and Aydın, 1987, p.100). In other words, the Income Statement, which is also called the financial performance statement, provides cumulative information about the performance of the business. Contrary to the balance sheet, it has a dynamic structure.
The financial performance statement, in other words, the income statement presents the activities performed in the period under five profit headings. These are gross sales profit and loss, operating profit and loss, ordinary profit and loss, period profit and loss and period net profit loss.
1.1.3. Cash Flow Statement
The cash flow statement is a financial statement that aims to explain the changes in the amounts of cash and cash equivalents between two successive periods. With the help of this financial statement, it is possible to monitor the money collections and payments of the enterprise in terms of resources and places of use. Thus, the decreases and increases in cash and cash equivalents during the period can be monitored together with their reasons, and they help to predict future cash needs and prepare the cash budget. (Akdoğan and Tenker, 2007, s.358).
1.1.4. Equity Change Statement
The Equity Change Statement is a financial statement that shows the increase or decrease in equity items in the financial reporting period as a whole. Thanks to this table, changes occurring in equity during the period can be seen as a whole. (Akdoğan and Tenker, 2007, s.426).
1.1.5. Footnotes
Footnotes provide supplementary information regarding disclosure of information presented in financial statements. If we qualify each item in the financial statements as a window, footnotes are explanatory notes that help us see behind the window.
1.2. Financial Management Process
Some basic policies are used to contribute to the company in the financial management process. In addition to the policies of finding funds and using these funds, which form the basis of financial management, there is also a profit distribution (dividend) policy regarding the distribution of the profit obtained (Aksoy, 2017, p.5).
In terms of the Statement of Financial Position (Balance Sheet), fund provision is associated with short and long term liabilities, while the use of funds and the dividend policy with current and fixed assets can be associated with the equity group.