An Introduction To Financial Statements

What are financial statements?

The financial statements contain records that outlines the financial activity of any entity especially a business or an individual. These are basically statements that are designed to put forth the financial information of the institution in question in a clear and concise manner. The financial statements of the business will include the income statements, balance sheets, cash flows, statements of retained earnings and all other statements that are related to financial transaction.

For any business, it is extremely important to comply with the current financial statements that also endure the generally accepted accounted principles which will further ensure the seamless continuation of information and display across all international borders. Sometimes, the statements submitted can be audited by the government agencies or assigned accountants, who ensure the accuracy for tax, investment and financing purposes. These statements become the most important de facto element that will ensure the accurate and honest accounting for both business and individuals alike.

Income Statement

Also known as the profit and loss statement or the statement of revenue and expense, the income statement is something that will measure the overall financial performance over the specific financial time period. The income statement is one of the three major financial statements, the other two being balance sheet and statement of cash flows. The income statement can be further divided into two parts, the operating and non-operating sections wherein there is a portion of the income statement that deals with various operating items that appear interesting to investors because this section will provide information about revenues and expenses that will be result of the regular business operations. The non-operating part of the section usually provides the information about the revenue and the expense that are not directly related to the activities or the daily operations of the company.

Balance sheet

This is a financial statement that will provide an overview of the total company’s assets and liabilities and shareholders. With the information generated from the three balance sheets the investor can have an idea what the company owns and what debt they owes, including the amount of money that is invested by the key stakeholders.

Statement of cash flows

Complementing to the balance sheet and the income statement, it is the cash flow statement which is also an integral part to the company’s financial reports. It records the different cash and cash equivalents that enter and leave the company. This statement allows the investors to comprehend the different operations of the business, and from where the money is coming from, and where it is being invested again.

Statement of stockholder's equity

This is also known as the equity or the net worth and is basically the shareholders equity which is basically the stakeholder’s ownership interest in a company. This is basically the portion of the balance sheet that will display all the capital that is gotten from the investors in exchange for the stock, retained earnings and donated capital. The display data is calculated from the organizations total assets minus the total liabilities which is basically share capital plus retained earnings minus the treasury shares.

Conclusion

With all these information, the investors can plan how much to invest in the company and have a fair idea about the money flows in the company.

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