Financial Statements
Financial Statements
Financial Statements are the end result of the bookkeeping process and are a business's report cards.
They are a business's essential documents that provide a comprehensive view of a company’s financial health. These statements are crucial for decision-making, analysis, and compliance. Let’s explore the three primary types of financial statements:
Balance Sheet:
- The balance sheet offers a snapshot of a company’s financial position at a specific moment in time.
- It includes three main components:
- Assets: These represent what the company owns, such as cash, accounts receivable, and inventory.
- Liabilities: These reflect the company’s debts and obligations, including loans and accounts payable.
- Owner's Equity: This represents the residual interest of the owners in the company.
- The balance sheet adheres to either Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
Income Statement (Profit and Loss Statement):
- The income statement focuses on a specific period (e.g., a quarter or a year).
- It details the company’s revenues (from sales, services, etc.) and expenses (such as salaries, rent, and utilities).
- By subtracting expenses from revenues, the income statement calculates the net income (profit or loss) for that period.
Cash Flow Statement (CFS):
- The Cash Flow Statement tracks how a company uses its cash.
- It categorizes cash flows into three sections:
- Operating Activities: Cash generated from day-to-day operations.
- Investing Activities: Cash related to investments (e.g., buying or selling assets).
- Financing Activities: Cash from financing sources (e.g., issuing stock, taking loans).
- The CFS ensures transparency regarding cash management and liquidity.
Owner's Equity (Capital) Statement:
- An owner’s equity statement, also known as a statement of changes in owner’s equity is a financial document that summarizes the changes in the owner’s equity of a business over a specific accounting period.
- This statement provides insights into how various factors such as profits, losses, investments,and withdrawals have affected the overall equity held by the owner.
Remember, these financial statements collectively provide insights into a company’s performance, financial stability, and growth potential.
Financial Statements Video