Accounting Information: Users, Cycle, Returns & Statements

Users of Accounting Information

Internal users: Internal users can take decisions within the company, such as senior managers who might consider the possibility of expanding the business or evaluate the results of a marketing strategy. Shareholders may consider the desirability of maintaining, expanding, or reducing their participation in the company.

External users: External users are not part of the company but are interested in its performance, such as suppliers (to see if they can collect deferred payments), financial institutions (to know whether or not to grant loans), and tax authorities (to assess taxes to be paid).

Accounting Cycle

The accounting cycle is the set of operations carried out from the moment a company opens its financial accounting system until it closes the year and prepares the financial statements. From the opening balance, the entries for opening accounts are recorded and the corresponding accounts are created and opened. During the year, the company records accounting events. At the end of the fiscal year, the company closes the accounting records, obtains the balance of all accounts, closes them, makes the necessary adjustments, and prepares the:

• Profit and Loss Account (Income Statement)
• Balance Sheet
• Statement of Changes in Equity
• Notes to the Financial Statements (Memoria)

Profitability

Profitability: The company's performance is obtained from the assets used in operations, regardless of funding. A common measure is EBIT / TA (Earnings Before Interest and Taxes divided by Total Assets).

Financial Return

Financial return: The yield that owners receive on their investment (BDI / rec. prop. (PN)).

Audit and Mandatory Accounting Books

Audit: A critical review of accounts carried out by persons independent of the audited company.

Mandatory accounting books: Under the commercial code, the company must maintain compulsory books. Typically there are two main books:

• Inventories and accounts: Includes the initial balance, quarterly trial balances, annual accounts, and year-end inventory.
• Daily book (diary): Records transactions relating to the conduct of the company's day-to-day business.

Financial Statements

The principal financial statements are the following:

Balance Sheet

The Balance Sheet is the accounting document that reflects the company's financial position at a specific point in time. It is divided into assets and liabilities plus equity, and the assets are grouped into pools by type.

Profit and Loss Account

The Profit and Loss Account (Income Statement) is prepared from the income and expenses recorded by the company and reveals the result the company obtained over a determined period. It is calculated as the difference between revenue and expenses.

Notes to the Financial Statements (Memoria)

Memoria (Notes): The notes are a complete accounting document that expand on and qualitatively discuss the information contained in the Balance Sheet and Profit and Loss Account.

Statement of Changes in Equity

The Statement of Changes in Equity consists of the statement of income and expenses that reflects changes in equity, derivatives, and other income for the year, and the total statement of changes in equity, which reports on transactions with partners and other equity movements.

Statement of Cash Flows

The Statement of Cash Flows reports cash on hand, demand bank deposits, and financial instruments that are convertible into cash and which mature at the time of acquisition, not exceeding 3 months. In this way you can know the company's ability to generate cash and determine the appropriate type of operation.