For most people, a “point in time” may conjure up images of a good souvenir or the reminder of an unpleasant situation. The same holds true for a business, and “point in time” on corporate financial statement delineates for investors and management the good and bad times the company has gone through.
“Point in time” specifies the date on which accountants present a financial statement. It can be the end of a specific period, such as a month, quarter or fiscal year. In contrast, some accounting reports span a time frame. Accounting norms such as generally accepted accounting principles emphasize the use of specific wording in financial-statement presentation. Accountants must present a balance sheet and an equity statement on an “as of basis,” which is similar to “point in time.” Conversely, they must report an income statement and a cash-flow statement that covers a time frame. To further illustrate, a company would present its annual balance sheet as of Dec. 31, whereas its income statement would cover the twelve months ending Dec. 31.
A complete set of accounting reports helps corporate leadership understand the mismatch between expectation and reality that often arises when operating results are far from anticipated. These financial statements provide the true picture of the business, enabling department heads to identify areas that didn’t make money as planned. To prevent significant variations between actual and anticipated results, companies often spend considerable time building projection worksheets in which they monitor such key operating aspects as solvency, efficiency, profitability and liquidity. The goal is to understand factors that drive growth and to avoid the frustration that may arise when actual performance is significantly below projected data. Corporate financial statements run the gamut from balance sheets and income statements to cash-flow reports and equity statements.
Preparing financial statements while conforming to proper dating schemes helps investors and financial analysts put a firm’s performance in the right context. This is especially essential to understand the company’s true performance and take out “the noise” that an excessively positive economy may have on overall sector performance. The objective is to find out how the business would fare as a stand-alone entity if economic factors weren’t favorable. This analysis speaks to management’s true operating prowess and strategic vision, and how both abilities help the firm fare better in the competitive landscape.
Government agencies pay attention to “point in time” accounting and reporting to weed out instances of illegal financial accounting. For example, the U.S. Securities and Exchange Commission may run sting operations to find out whether a publicly traded firm accurately depicted its financial position at a point in time.