Introduction

The need for financial information for decision-making necessitates the preparation of various financial statements to provide the business owners, potential investors, and other interested parties with information about the performance of the business (Cioca, 2020). To meet different decision makers’ diverse financial information needs, accountants prepare four basic financial statements that summarize the business’s overall performance. The four basic financial statements are a Statement of comprehensive income, a Statement of financial position, a Statement of change in equity, and a Statement of cash flow. In this regard, this paper discusses the importance of these financial statements in business decision-making. Besides, the paper evaluates the concepts of forecasting, budgeting, and strategic planning in supporting the organization’s success. More importantly, this report provides an in-depth analysis of various organization responsibility centers and the rights assigned to each responsibility center.

The Four Basic Financial Statements

Income Statement

An income statement is an essential financial statement that shows the revenue of the business and the expenditure incurred in earning the revenue. It is, therefore, a financial statement that shows the business’s profitability by comparing income against expenses. If the income is more than the expenses, the company has made a profit, but if the business expenses are more than the income, the business reports a loss (Warzocha,2018). As such, business owners prepare an income statement at the end of the operating period to assess the business’s profitability. If an income statement shows consistent losses, a company may face potential closure as no potential investor prefers to invest in a loss-making business organization.

The Statement of Financial Position

The management of the business prepares this financial Statement to determine the net worth or financial standing. The Statement of financial position clearly illustrates the basic accounting equation, which demands that total assets be equivalent to the total liabilities and capital. Therefore, the Statement of financial position lists all assets of the business as well as liabilities and capital. The information presented in this financial Statement can be used to evaluate the liquidity and solvency position of the company, thus forming a basis for decision-making and planning.

The Statement of Shareholders’ Equity

Companies issue this financial Statement as part of the balance sheet to illustrate the changes in the owners’ equity. The Statement of change in shareholders’ equity provides information about common stock, preferred stock, retained stock, and other forms of the owners’ equity. Therefore, by tracking the changes in the owners’ equity, the business managers can get insight into its capital structures and identify the areas that need improvement.

The Statement of cash flows

This financial Statement is critical in identifying the business’s cash flows. It is prepared on a cash basis and eliminates non-cash transactions to provide information about the company’s cash streams during an operating period. The cash flow statement is organized under three sub-headings illustrating the various sources of business income and major expenditures (Warzocha, 2018). For instance, cash flow from operating activities provides information about revenue-generating activities such as sales revenue. Cash flow from financing activities includes information about the issue and redemption of capital and debt capital. In contrast, cash flow from investing activities includes information about the business’s sale or disposal of fixed assets. Therefore, a cash flow statement is essential in business decision-making as it helps managers understand how the company generates and spends money.

Strategic Planning, Forecasting, and Budgeting

Strategic planning is the skill of developing detailed business plans, putting them into action, and assessing the outcomes in light of the organization’s long-term objectives and aspirations. It is a framework that incorporates different corporate divisions, such as human resources, finance procurement, accounting, and marketing, to achieve a firm’s strategic objectives (George et al.,2019). By serving as a blueprint for attaining long-term competitiveness and growth, strategic planning helps to enhance communication and coordination within the organization, thus accelerating the development of the business.

On the other hand, forecasting is another critical process in the organization that aids pla