Business

An annual report is a company’s yearly report regarding finances. Accounting is the process used to formulate an annual report. Accounting represents all of the financial transactions of a business in a format that can be interpreted and understood by both internal and external stakeholders. An example of internal accounting users include the HR team. They use the information provided by accounting to set salaries and benefits. An example of external accounting users are potential investors. There are three key financial statements that are reflected in these reports. They include the income statement, balance sheet, and statement of cash flows. Income statements report the profitability of a business organization for a stated period of time. They are developed by comparing the revenues earned with the expenses incurred to produce these revenues. The balance sheet lists the company’s assets, liabilities, and equity (including dollar amounts) as of a specific moment in time. This statement uses the accounting equation, Assets − Liabilities = Owner’s Equity. Lastly, the statement of cash flows summarizes the effects on cash of the operating, investing, and financing activities of a company during an accounting period. This is developed using a report of cash receipts and cash disbursements.

Using the information provided by the three key financial statements, one can make sense of annual financial reports of businesses such as Microsoft. As of June 30, 2021, Microsoft’s income statement states the company had a total revenue of $143,015 billion, total expenses of $98.172 billion, and a net income of $44,281 billion. This information is important to stakeholders such as investors and potential investors to estimate their potential profits. The balance sheet states an owner’s equity of $118,304 billion. This information is important to stakeholders such as shareholders seeing as though they have share of ownership in the business. Lastly, Microsoft’s statement of cash flows states a net cash use of $60,675 billion from operations, a net cash use of $46,031 billion in financing, and a net cash use of $12,223 billion from investing. According to the International Finance Reporting Tool, this information is important to “accounting personnel, who are interested in information about whether the organization will be capable of covering payroll and other immediate expenses.” These financial statements are created using technology such as accounting software/systems that keep track of every dollar a company spends and makes in revenue. The information is shared using computer networking systems.

REFERENCE TEXTS:

1. 12.3: Using Technology Libretexts https://biz.libretexts.org/Courses/Prince_Georges_Community_College/BMT1010%3A_I ntroduction_to_Business_(Bailey_Robinson_Park_Bassette__Perry_2021)/12%3A_Mod ule_Twelve_-_Importance_of_Technology_for_Businesses/12.03%3A_Using_Technolog y

2. 13.6: Financial Statements Libretexts

https://biz.libretexts.org/Courses/Prince_Georges_Community_College/BMT1010%3A_I ntroduction_to_Business_(Bailey_Robinson_Park_Bassette__Perry_2021)/13%3A_Mod ule_Thirteen_-_Business_Accounting/13.06%3A_Financial_Statements

3. Microsoft https://www.microsoft.com/en-us/Investor/earnings/FY-2020-Q4/

4. Statement of Cash Flows https://www.readyratios.com/reference/accounting/statement_of_cash_flows.html