main purpose of annual financial reporting and its components

financial rreporting


main purpose of annual financial reporting

using financial statements to reveal financial information and performance over a specific period, such as annually or quarterly, is standard practice in accounting. The three main goals of the financial reporting are:

  • Provide information to the investors
  • Track all the cash flow
  • Properly analyze the assets, liabilities and owner equity.

These reports look at how much money is being spent on resources, how much money is coming in, and how well the Company is doing financially. So, you and your investors will be able to make well-informed choices about running the Company. Business financial reporting is your primary source of information for this purpose. Your Company’s future growth is guaranteed if you have a solid financial position. Suppose this is the case if you’ll have to assess your Company’s overall performance. Financial reporting is also a way for a company’s owner or management to commit to stakeholders such as investors, the government, and the general public. Your financial records must be exact as a result.

financial reporting components

To achieve the highest accuracy, these components of the financial reporting are essential which are as follows:

  1. Income statement
  2. Balance sheet
  3. Cash flows
  4. Changes in Equity


A company’s most critical piece of financial reporting is its income statement. The component shows how much money your business made (or lost) over a specific period. There are two sections in your income statement: one displays gross profit (or loss), and the other shows your Company’s net profit (or loss).


The balance sheet measures your Company’s ability to pay loans. Begin with non-current items like computers and furnishings. Then disclose current assets. All existing assets are inventories. Accounts payable and bank overdrafts are examples of current liabilities. In a nutshell, the balance sheet shows your Company’s equity.


It depicts your financial flow. Operations, investments, and finance may generate money. Daily activities, operational sales, and inventory purchases need operating cash flows. Long-term project income and cost investments. As well as dividends and Capital gains.


The component reports equity changes. The beginning and ending balances reflect changes over time. This component updates equity proportions.

beneficiary users of financial reporting

Internal users are individuals inside a company who utilize financial data. Owners, managers, and workers are internal users. External users are non-business consumers of accounting data. At the same time, External users are those who access accounting information from outside the corporate body. External users include suppliers, banks, consumers, investors, and tax authorities.

financial reporting vs financial statement

When it comes to financial reporting, it is giving information to business stakeholders to make choices. The financial statement is the result of the financial reporting process. The most significant distinction between financial reporting and financial statements is this.