Meaning of financial statements

Financial statements refer to reports prepared to evaluate the performance, financial health and the liquidity position of the business. Financial statements are prepared using the transactions accounted in the books of the account. In simple words, all the accounting data is consolidated into a financial statement in a manner which is generally accepted and understood.

Periodicity of financial statements

Traditionally, financial statements were prepared annually i.e. after the closure of the accounting period. With modern-day business operations and requirements, the business owners depend on the financial statements for decisions making. As a result, businesses prepare financial statement monthly, quarterly and half-yearly as well. The insights from the financial statements are reliable and help business owners to make confident decisions.

Users of  financial statements

Financial statements are used by internal users as well as external users. The financial statements depict the overall financial health of the business and help users to make better business decisions.

• Internal users:Internal users of financial statements are management, employees, Owners etc.
• External users:Regulatory, tax authorities, banks, unions, investors, creditors etc. are the external users of financial statement.

Types of financial statements

Using the accounting records, 3 types of financial statements are prepared by the company. These 3 types of financial statements provide insights about the financial health, profitability and liquidity of the business. Following are the 3 types of financial statement:

• Balance sheet
• Profit and loss account
• Cash flow statements (CFS)

• Balance sheet: Balance sheet is a type of financial statement that summarizes the company’s assets, liabilities and the amount owned by the business owners. This financial statement broadly consists of assets and liabilities. A balance sheet helps the stakeholders to evaluate the efficiency in working capital, asset portfolio and the financial strength.
• Profit and loss account: This statement reveals the performance of the business in terms of profit or loss for a specified period. Using this financial statement, net profit is calculated after considering the gross profit/loss and all other indirect expenses or incomes.
• Cash flow statements: Cash flow statement projects the organization ability to generate cash inflow, cash outflows to meet its obligations or commitments and investment.

How to prepare financial statements

All the financial statements are prepared using the accounting transactions recorded in the books of the accounts. Preparing financial statements is one of the outcomes of accounting i.e. analyzing and interpreting the business transactions.

The following are the steps to prepare a financial statement:

• Recording transactions in a journal book
• Preparing ledger accounts
• Preparing trial balance summarizing the closing balance of ledger accounts
• Using trial balance, you need to prepare profit and loss account and balance sheet.

Cashflow statement is an independent financial statement which compliments balance sheet and income statement. Cash flow statement is prepared considering the operating activities, investing activities and financing activities.

Sales and purchase are the two most important functions of any business. Transactions with these natures keep a company running and so they should be recorded accurately, timely and seamlessly. While most accounting software would provide this feature as it is a basic need that any entrepreneur is looking for when adopting technology for their business, what’s important is how much can a user make out of these simple reports and add value to their business.

Sales and purchase registers have been maintained by companies since the inception of accounting. Traditionally, these were maintained manually, sales and purchase books recorded all the transactions which occur every day. However, with digitisation taking the world by storm, business owners have now automated maintenance of sales and purchase register through various accounting software.

Recording sales and purchase transaction is no rocket science, and once these transactions are recorded, their respective registers are created. Sales and Purchase register is nothing but a comprehensive day book which comprises of all the transactions which you have recorded so far. This report will help you get a detailed view of all your transactions which have been made throughout and allow you to make any corrections if required.

Advantages of automated Sales and Purchase Register

• With a sales register, you can analyse a periodic turnover of your company, be it monthly or yearly. You get a consolidated report of each sales transaction that you have done for a specific period.
• You can also easily navigate to the respective invoices and vouchers, in case there are any errors detected post sales.
• Purchase returns made during a year can also be traced. At any given point, if your customer returns with an invoice issued by you, and addresses any grievance which is product-related, you can easily go back to the entry made at the tarnation level and modify the data accordingly.

With Tally.ERP 9’s Sales and Purchase Register, you can easily view all your transactions in a split of a second. Detection of errors and the ability to correct it with numerous shortcut keys, will help you save a lot of time and effort. Because of Tally.ERP 9’s flexible nature, navigating to the respective transactions till the entry-level and then correcting it with the right value, becomes very easy. Sales and Purchase Register Tally isn’t just confined to giving you a gist of all the transactions but also track transaction-level profitability to get more insights about your business. With the columnar view of the purchase transactions, you can get a detailed view of each purchase transaction which is a great reference point to check for any discrepancies and inaccurate entries. For adding more value to your business by getting consolidated sales and purchase reports, take a free-trial here.

Determining the financial health of your business depends on several aspects. One of them is ratio analysis which draws a clear comparison of line items in the financial statements of a business. Ratio analysis is a powerful tool for financial analysis. The report indicates the health of the business using the defined formula. The higher / lower ratio indicates good /poor liquidity position of the business. This report is not just useful for the stakeholders outside of a firm who do not have direct access to other crucial financial statements like balance sheet, profit and loss statement, etc, but also for internal management. Ratio analysis report permits the stakeholder of an entity to make better sense of the accounts and better understanding of the current fiscal scenario.

Objective of Ratio Analysis

While ratio analysis helps a business owner understand the overall financial health of his company, it also becomes a vital tool for financial management. With a clear understanding of the company’s finances, an entrepreneur can easily take crucial business decisions which would impact his company’s growth and profitability. Here are some of the most crucial objectives of ratio analysis report:

Profitability measurement

Profit is always the ultimate motive behind running a business. If a company is selling goods on a large scale, that does not necessarily mean that it’s making profits. The crucial part is drawing a comparison of two numbers with respect to each other and calculate the net profit. Ratio analysis also helps a company in determining the use of its assets and how these assets are incurring profits. To measure profitability, you must get adequate information on Gross Profit Ratios, Net Profit Ratio, Expense ratio etc which measure the profitability of a firm. The management can use such ratios to find out problem areas and improve upon them.

Evaluation of Operational Efficiency

Certain ratios highlight the degree of efficiency of a company in the management of its assets and other resources. It is crucial that assets and financial resources be allocated and used efficiently to avoid unnecessary expenses and prevent cash blockages. Turnover Ratios will point out any mismanagement of assets. A single ratio may sometimes give some information, but to make a comprehensive analysis, a set of inter-related ratios are required to be analysed and that’s exactly what ratio analysis does.

Ensure Suitable Liquidity

Every firm must ensure that some of its assets are liquid, in case of emergencies when cash is required. Thus, the liquidity of a firm is measured by ratios such as Current Ratio and Quick Ratio. These help a firm maintain the required level of short-term solvency.

Determine Long-Term Solvency

There are some ratios that help determine the firm’s long-term solvency. They help determine if there is a strain on the assets of a firm or if the firm is highly in debt. The management will need to immediately address and rectify the situation to avoid liquidation in the future.

Working Capital Ratios

Like the Liquidity ratios, it also analyses if the company can pay off the current debts or liabilities using the current assets. This ratio is crucial for the creditors to establish the liquidity of a company, and how quickly a company converts its assets to bring in cash for resolving the debts.

With Tally.ERP’s Ratio Analysis report you can get a clear picture between the principal groups and key figures in detail instantly without any added efforts. From determining the efficiency ratio to sundry debtors and sundry creditors to the inventory turnover, get information about all the crucial aspects which impact the financial health of a business in a single shot. Another important lever which regulates regular cashflow in your business, payment performance of debtors is also detailed out in ratio analysis. Both the receivable turnover in days and the customer’s actual payment performance is displayed in the report which helps you take appropriate decision to avoid blockage of cash. To get a better understanding of how ratio analysis will help you get a clear picture of your company’s finances, take a free trial now.

Stock analysis is extremely crucial for any business as stock play the role of a company’s heartbeat. From stock movement to reordering to stock ageing, various reports are involved in order to get the right information about your business’ inventory. It is only with these crucial reports can one identify the important aspects of stock items and thus take business decisions worry-free. One such report is Stock Summary.

What is Stock Summary?

A Stock Summary is a statement of the stock-in-hand on a particular date. It is one of the primary inventory statements that updates the stock record in real-time as and when transactions are entered. Stock Summary provides information on stock groups and shows the quantity details, rate and closing value of the stock items under them.

Benefits of Stock Summary Report:

• You can view the entire stock flow ranging from opening stock goods inwards, goods outwards to the closing stock can be analysed in terms of its quantity.
• You can identify and view the available stock at different locations and take purchase and sale decisions accordingly.
• A clear view of purchase and sales order outstanding which will further help you decide on the actionable tasks to improve your business’ cashflow.
• It gives you an insight into the quantitative movement of each stock item.
• With details about the Nett Stock, you can even establish great relationship with your consumers by giving them suggestions and alternative choices when the demanded stock is unavailable.

The Stock Summary report with stock valuation methods can be used to view the effects of different methods on the value of stock. Each stock item can be set up to have a different stock valuation method. In some instances, a particular method of valuation may be required, for example, to assess the replacement value or saleable value of stock. Tally.ERP 9 displays stocks in any or all the valuation methods dynamically and simultaneously, without any complicated procedure. Tally’s stock summary report is so dynamic that apart from just showing you a list of inventories, you can do so much more. You can also view profitability and consumption details for each stock item and will give you a drill down of each stock item to track the micro-level details which are crucial for planning way ahead. Quite interesting, isn’t it? Take a free-trial of Tally.ERP 9 today and manage your business more efficiently.

Optimum stock is the key to manage inventory successfully. Overstocking will lead to blockage of cash and add up to certain risks such as price fluctuation, cost of managing excess stock, dead stock etc. This means that excessive stock may lead your business into losses.

Detecting the correct re-order level is extremely crucial. If an order is placed too soon, it would incur extra costs which include, warehousing rent, opportunity cost, etc. These costs are classified as “carrying costs” which also affects the overall financial health of your business. However, if the company places an order too late, it would result in stock-out costs, for example lost sales, etc

Some of the most crucial benefits apart of keeping your company’s finances steady which re-order levels of inventory reap are:

• Automatic generation of a replenishment order at the appropriate time by comparison of stock level against re-order level inventory controls
• Appropriate for widely differing types of inventory within the same firm
• This report will help you in taking the appropriate decision for timely Purchase of Materials and will readily provide all relevant information required for placement of a Purchase Order.
• Monitoring stock levels to see when the “re-order point” has been reached. The re-order point is the point at which the stock gets low enough that it’s time to order further stock.

Maintaining a company’s financial health remains a top priority for any business owner and accurate management of inventory triggers that. Reordering of your stock without incurring any additional expenses could be a bit challenging but it certainly isn’t impossible. Especially with a software as flexible and reliable as Tally, you can ensure that you never run out of stock.

To simply put, Tally.ERP 9 accepts the quantities that you want to specify. In advanced mode, it considers the previous consumption patterns to suggest re-order levels. However, you can define your own reorder levels. You can also specify the minimum quantity of the item to be ordered, either in simple or in advanced mode. Keen to explore more about of stock? Take a free-trial right here!

Inventory and stock play a significant role in defining a business and its profitability, and it is a well-known fact. One of the most crucial features every business owner expects in an accounting software is for it to be able to track inventory accurately and seamlessly. For any business to efficiently manage its activities, the stock needs to be recorded error-free. Any business owner who is looking for a business software demands it to be robust and flexible, so that at any given point data can be altered as per the requirement.

Physical Stock Voucher is used for recording the actual stock which is verified or counted.  It could happen that the Book Stocks and the Physical Stock do not match. It is not unusual that the company finds a discrepancy between actual stock and computer stock figure. In such scenarios, the software must give you the flexibility to accommodate such discrepancies so that your books and stock-in-hand match. Physical stock differences must not be ignored by any business as stock management can make or break your business.

Often while running your physical audits, you may encounter some discrepancy in stocks. With physical stock journal, you can easily make the changes so that you can take your business decisions accurately without affecting your profitability. Mismatch between the value of closing stock recorded in the company books and the actual physical stock in the godown can arise due to

• Inaccurate stock records
• Theft, damage, loss, and so on

These discrepancies can be rectified by passing a physical stock voucher so that the closing stock as accurate.

With Tally.ERP 9’s physical stock register feature you can easily assess the available stock and find out about the inventory discrepancies in your books. This way you can effortlessly adjust the stock values and even derive to conclusions as to why your book stocks do not match with your physical stock. Physical stock vouchers offer you a great deal of flexibility in terms of recording of stocks with the help of which you can easily and seamlessly manage and view the status of your inventory at a single shot. With the feature of narrations, you can even clearly view the reason behind various inconsistencies and manage your business more efficiently.

Wish to streamline your inventory management more effectively? Take a Free Trial here, right away.

Inventory and stock management is the heartbeat of every business. Especially businesses who are players in the retail sector, need to diligently manage their stock position for the entire company as well as stock-in-hand at each location. While there are several inventory reports which give you a detailed summary of the stock, Godown Summary is one such report which drills down to display the available stock at each location where your business operates and helps you take crucial inventory-related decisions seamlessly.

4 Key Benefits of a Godown Summary Report

1. Access to stock-in-hand at different locations

Companies use the Godown Summary report to track inventory within factory premises at various manufacturing stages or workstations. The statement provides current stock position for any godown or location at any time. The benefit of having enough stock-in-hand is to meet the demand of your customers. With this report, business owners can seamlessly decide on how to use the stock accurately. Since the statement will give you the location details, you can decide how and where to use the stock without spending any extra amount in the transportation from one location to another.

2. Compare Stock Balances

Efficient stock control allows you to have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain. Godown Summary report gives you a thorough comparison between the stock balances or stock item quantities, rate and value with other godown(s)/location(s) for the different periods which lets you clearly draw comparisons between the stock available in different godowns. This report will also enable you to assess the slow- and fast-moving stocks over a period of time which is helpful for crucial decision making at an inventory level.

3. Stock Visibility

With the help of a Godown Summary report, you can non-transacted stock to alternate units to third-party stock which is in the warehouse. There could be numerous reasons why you might have sent stock to a third-party vendor and vice versa. The Godown Summary report will help you get a consolidated view of the stock whether physical/non-physical, which will further reduce working capital and increase profitability.

4. Customer Satisfaction

When you get a consolidated report of where your stock is physically, you can easily decide on the customers when the demand increases. Instead of informing your customer about the unavailability of the stock, you can advise him to approach the nearest warehouse as per his suitability where the stock is available. You can also take important decisions like how much time and money would you require to invest in order to deliver the stock to your consumer. Basis this, you can even communicate the timeline to your consumer which results in increased customer satisfaction as you can deliver the desired product as per the promised time.

As per Tally’s interpretation, the word Godown it is not limited to physical godown. Companies may use it to track inventory within factory premises at various manufacturing stages or workstations. Further, it is also required to track inventory of raw material and semi-finished and finished product under Job work activity either in case of material transferred on job work basis or for job work undertaken by the company. There is functionality in Tally’s godown master to mark it as own stock of company or third-party stock (i.e. material received for Job work and final product produced out of it by the company). As per accounting principles, such inventory of third party shall not be mixed up with companies own inventory. Tally.ERP 9‘s robust feature takes care in efficiently managing such inventory through the Godown Summary report. Find this feature interesting? Take a Free Trial right here and see how this particular report will help in your everyday business activities.