FINANCIAL STATEMENTS

In business, in order for a firm to know wether their business is operating how it should be, they
need to monitor the changes on their assets, liabilities and equity. Monitoring expenses and cash
inflow of the business is one of the important things to know if your business is effective. We can say
that we have “good” or “healthy” business if we are earning profit and not a loss. But how can we
know if we are having a profit or loss? How can we know if our company is liquid enough to cover our
liabilities?

Preparing Financial Statements is one of the easiest and most effective way to answer all the
questions of the company. In this phase of business operation we will be needing the help of Sales,
Purchasing and Production Department for us to account all the changes on our assets.

The Responsibility of Sales Department is usually searching for and identifying prospective clients.
The next responsibility of the sales department is reaching out to those potential clients and making
contact, which is when the relationship-building begins in earnest. A sales representative will identify
the needs of the client, and find out any relevant information for making a sale. Successfully closing
sales is another responsibility of the sales staff: processing transactions and ensuring payments run
smoothly. They’re responsible for managing customer relationships and keeping customers happy
long-term.Customer retention is crucial to business profitability, which often falls on the sales team as
they continue to follow up with and meet the needs of customers. The sales department must
maintain customer relationships and manage the satisfaction of all clients.

Sales department tells what products will be sold and in what quantities at what prices. Sales
department provides the revenue predictions from which cash receipts from customers can be
estimated and supplies the basic data for constructing budgets for production costs and selling and
administrative expenses. Simply, the Sales department (sales) determines the quantity or volume of
goods that should be produced within a certain time frame and passes the information to the
production department and the sales expenses incurred (selling and administrative) will affect the
income statement because of the cost incurred in performing the sales. The income statement can
now be prepared. After sales, the cash receipts from customers will be an addition to its cash.

Production Department is responsible for converting raw materials and other inputs into finished
goods or services. In between the processes of production, the department works to improve the
efficiency of the production or assembly line so that it can meet the output targets set by company
management and ensure finished products offer consumers the best value and quality. In order for
them to produce good quality products, they’re measuring the inputs of the products and as they
measure they are recording the incurrence of the Direct Materials, Direct Labor and the Overhead
costs that has an effect on it’s cash. Various adjustments and additions will have to be made when
preparing the financial statements for payment accruals as well extraneous items that do not show up
in any of the past records prepared. After all the change, we are now ready in preparing the
Statement of Financial Position.

Statement of Financial Position reports three main importance financial information of the entity at
the end of the balance sheet date. This three importance information are Assets, Liabilities, and
Equity. It shows the lists of the resources, obligations, and ownership details of a company. It only
records the company account information on the last day of an accounting period. Statement of
financial position helps users of financial statements to assess the financial health of an entity. When
analyzed over several accounting periods, balance sheets may assist in identifying underlying trends in
the financial position of the entity. It is particularly helpful in determining the state of the entity's
liquidity risk, financial risk, credit risk and business risk. When used in conjunction with other financial
statements of the entity and the financial statements of its competitors, balance sheet may help to
identify relationships and trends which are indicative of potential problems or areas for further
improvement. Analysis of the statement of financial position could therefore assist the users of
financial statements to predict the amount, timing and volatility of entity's future earnings.
Simply, It is a historical report that can be compared to the future statement of financial position to
monitor the progress of the company.