Financial Statements
A financial statements is a financial summary report of business transactions during the specific period. It reveals the business financial health. It prepares at the end of the accounting period. The purpose of the financial statement is periodically review of the business and determined the result the company achieved.
Major Financial Statements
Most of the business companies develop four major financial statement documents including income statement, balance sheet, cash flow statement and statement of owner equity. To understand the relationship in between financial statements can help you to know the business financial position and can support in making decisions.
Income Statement
The income statement is an important financial report also known as profit and loss account report. It includes all the revenue, gains, expenses, and losses. Where the revenue refers as money earned from the business operation and expenses are the cost of goods sold. You can calculate net income, revenue minus the cost of goods sold plus gains minus losses.
Balance sheet.
The balance sheet lists the information of company’s assets, liabilities and the value of the business by owner investment as on a particular date. It is also known as a statement of financial position of the company. It prepares at the end of the accounting period after preparing an income statement.
Cash flow Statements
Cash flow statements show company cash inflow and outflow statement. All the items which effect on cash are listed in this statement. The first part of this statement is operating activities which tell cash flowing in and out of the company during business operation. Cash flow statement determined the liquidity and pay company bills when due.
Statement of Shareholder’s Equity.
Shareholder equity is the investment and past earning of the business. This statement tells what change comes in shareholder equity account as on a particular period. This statement is important for revealing stock sales and repurchase, It calculates after retained earnings. You must calculate all the stock including common stock, preferred stock, net income from profit and loss account add in beginning balance of retained earning minus all dividends.
Financial Statement Significance
Financial statements are very important for management for taking a decision. It provides the information in the monetary form and ignores qualitative portions.
It provides the information about company profit along with operation cost of a certain period of time which is very useful for management and other shareholders.
Companies can borrow the loans from the lenders on the basis of good financial statements.
Financial statement always present past performances which are helpful for periodic review of financial activities
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