The Concepts Of Financial Statement Used In Business Decisions Accounting Essay


This report analyzes the concepts of financial statement used in business decisions regarding the balance sheet and income statement, such concepts indicate the main source of data used in the preparation of a company's annual reports, communication with management and advice. The concept and performance was analyzed through comparative income and balance sheet statement analysis, ratio analysis and trend analysis influencing the business decision.



Financial statement provides an overview of analyzing, classifying and interpretation of a company�s financial performance over time, which should be reliable and relevant, useful by managers, investors and owners helps in making informed business decisions. The purpose of this research proposal is to inform and analyze the use of balance sheet and income statements helps in making informed business decisions, which will begin with a summary of financial statements helps to prove the current and future decision of business along with financial goals of management.

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Business Owners and managers require a critical understanding and knowledge concerning the use of balance sheet and income statement which help determine their business's decision in maximizing profit and using their financial statement (Income statement and balance sheet) as part of annual report to stockholders. The financial statement offers the business owner a ability to predict and assess the future growth of the business and comparing with the past current performance. (Victoria .S, 2010)

Copyright � 2010 [Article by: VICTORIA SHOAF]


The primary objective of this report is to inform and analyze the use of income and balance sheet statements which help determine the business in making decision and plan to differentiate various decisions which requires a critical understanding of achieving a successful plan in business that would be profitable and valuable in the business and aims to have an insight understanding concerning accounting principles, assumptions and theories as well as analyzing the tradeoff between income and balance sheet statement. This report is investigated in general and different sources of data collected used in informed business decisions and as well as accounting practices (General Accepted Accounting Practice GAAP) which are associated with IFRS (International Financial Reporting Standards).



The aims and goals of companies are to earn profit in most efficient and effective possible way, and enable to review financial statement which encounter how much expenditure it cost the business to generate profits. Most companies use financial ratios as a benchmark system, focusing attention on making informed business decision and have the responsibility to maximize the monetary return of owners, employees, managers and stakeholders of the business than maximizing monetary return for an individual.

Critical backgrounds in financial accounting are useful in some area of interests, members of lawful companies use accounting information in antitrust cases, fraud and tax to determine agreement with government rule and regulation. Therefore bankers and investment brokers use accounting data in making their investment and other financial decisions. (Weygandt Kieso 1995)

Weygandt Kieso, 1995, Financial Accounting. John Wiley & Sons, Inc. Pg 21

With the aids of reporting on proprietor occupied assets in financial statements prescribed by some accounting standards, the financial reporting standard on this concept report a true and fair value, which is a responsibility of the directors and management to determine the fair value of assets for reporting the financial position, changes and performance. (Parker .D. 2007)

Parker .D. (21/24 January, 2007), The Role of Director�s Valuations in Balance Sheet Reporting: 13th Pacific-Rim Real Estate Society Conference Fremantle in Western Australia. [Cited from] Viewed on 16 July 2010.

Most company�s representatives like their standards setters in adopting accounting standards for financial reporting issues including General Accepted Accounting Practice (GAAP) because of professional auditing which is directed to the auditor rather than the lawmaking entities. The concept used in the preparation of financial statements (Income statement and Balance sheet) could be more suitably in the financial reporting standards (FRS). on the 16th

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This paper discover and explore company's financial income and balance sheet statement which contain important information concerning risk capital of the business, provide return by various decisions and ability to pay out dividends, therefore the business owner require a flow of information that make informed business decision the success and failure of a business


The researcher conduct a literature review based on uses of balance sheet and income statement helps in making informed business decision and conduct a brief understanding on the tropic before proceeding on with the research work.

The researcher selects two general companies (Camellia and Heineken Company) and study how the business can make and plan decision to forecast for the future through the use of balance sheet and income statements. The annual report of a company provide relevant information containing financial statement (Stainbank and Peebles, 2006)

Stainbank and Peebles 2006 (L Stainbank C Peebles)

The usefulness of corporate annual reports in South Africa: perceptions of preparers and users


Company Overview

Camellia Plc

An amalgam of companies, whose international group activities include agriculture, horticulture, food storage, banking and financial services, distribution and engineering with over 70,000 employees worldwide and emphasis toward development which the management can take a long view. The company is required to set out a fair review of the report during the business group and a description of uncertainties and description of principal risks facing the group.

The aims of the company are to secure growth and development of the business in a suitable manner and to gain an attractive return on investment, having the responsibility of ensuring development, progressive growth and continuity.

Financial Statements

The company�s consolidated income and balance statement prepared in the report are analyzed in accordance with the IFRS (International Financial Reporting Standards) which are useful and helpful to various stakeholders / stockholders involved in the company. Therefore the consolidated financial and accounting statements are based on the historical cost method.

� Relevant: Consolidated income and balance statement show importance impact and difference in its business decision and helps various stockholder / stakeholders involved in the company to demonstrate prior expectations and to make changes regarding the current and future events.

� Reliable: The Company�s consolidated income and balance sheet statement should be reliable, proven and present, verified by only truthful information.

In accordance with the International Financial Reporting Standards (IFRS) the financial statement are useful and helpful to various stakeholders involved in the Coca cola Company, therefore such accounting consistent methods can be applied and are comparable by reporting the company�s financial performance


Coca Cola Company

A world's mineral biggest beverage companies in terms of sales volume and profit with over 92,800 employees� worldwide refreshing consumers with sparkling and brands, world's number one provide of sparkling beverage, ready to drink coffee, teas and juice. The company focuses on initiatives decisions that protect the environment, enhance economic development and conserve resources.

Their mission are to account for action and inactions, finding ways to solve risks problem, understanding the trends and focusing on business building value and assets for the future and to continue achieving suitable quality growth and development to satisfy consumer's needs and desires.


The researcher collects and evaluates this research proposal by both primary and secondary data which can be collected from different sources and company�s financial statement used in analyzing financial tools and techniques to help make informed business�s decision.


This analysis provide a meaningful advantages that help the business's owner to make decisions through the company's financial statement by various analysis to forecast and focus for the future, including the comparative income and balance sheet statement, trend analysis, and ratio analysis using two years financial statement comparison in accordance with the accounting standard and policy.

A business owner can make effective decision by use of ratio analysis which represents the effect of their performance on how profitable the business is, liquidity represent the ability of how the business can meet its short term financial obligation which can easily be converted into cash, and efficiency which determine the business's receivable and payable�s ratio.

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Business Decision by use of trend analysis which highlight the movement of a business's financial statement focusing for the future and help determine the business owner whether or not the business will be profitable and by use of comparative income and balance sheet statement which involve the business's financial statement comparison increasing or decrease in the trend movement. As shown in the appendix indicates the companies data analysis performed. (Frank Wood & Alan Sangster, 2002)


Completion of the research proposal 2 week

Completion of literature review 3 days

Completion of field work 1.5 weeks

Completion of analysis 3 days

Finalisation of the report 2 weeks


This report is constrained within a period of 28 days to analyze the uses of how balance sheet and income statement helps in making informed business decision and using companies in general to analyze the performance with the accounting standard and policy, which data are collected through primary and secondary sources and other relevant analysis such trend, ratio, comparative analysis applied as well.