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Also known as a settlement of account, an account settlement is a summary of the performance and operations of a company that take place within a specified fiscal period, usually a calendar or business year. The main purpose of this type of document is to provide officers and investors with an overview of how well the business performed during that period. Data of this type makes it much easier to determine if the business is growing from one period to the next, is currently stable but stagnant in terms of growth, or has sustained some sort of a decrease during the time under consideration.
While the actual structure of an account settlement will vary somewhat, based on the size and type of business involved, there are a few basic elements that are included. First, the overall operating expenses for the company are detailed in one section of the report. Often, this section is broken down into several different categories, making it possible to have a clearer understanding of what type of expenses were incurred, and what percentage of the total expenses are represented by each of these line items.
The account settlement will also address the various types of income generated by the business during the fiscal period under consideration. Generally, the largest source of income for any business is revenue generated from the sale of goods or services. Along with this line item, the annual report will also include information about income generated by the sale of equipment, facilities, or other property. In the event that the business received income from investment activities, data regarding those returns is also included in the income statement section of the document.
Many layouts for an account settlement will also show the variation between total expenses and total income for the period under consideration. This third section often serves as the basis for determining how to structure the operating budget for the upcoming year. If the business earned a profit, there is a good chance that the budget for the upcoming period will include provisions for making improvements or some other type of expansion. For businesses that are stagnant, the detail of the settlement statement can provide the framework for identifying areas where expenses can but cut, thus increasing the chances of achieving a higher profit margin. When the account settlement detail shows that the business is losing money, the settlement serves as a basis to begin making significant changes in an effort to reverse the situation and restore the business to profitability over the next fiscal year.