Financial Statements

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Financial Statements – are the primary tools of financial reporting, compiled with information from either T-accounts or journal entries.  Financial statements provide an overview of a business or person’s financial condition in both short and long term at a particular point in time.  All the relevant financial information of a business enterprise, presented in a structured manner and in a form easy to understand, are called the financial statements. There are four basic financial statements:

  1. Balance sheet: also referred to as statement of financial position or condition, reports on a company’s assets, liabilities, and net equity as of a given point in time.the-balance-sheet1
  2. Income statement: also referred to as Profit and Loss statement (or a “P&L”), reports on a company’s income, expenses, and profits over a period of time.Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.the-income-statement3
  3. Statement of retained earnings: explains the changes in a company’s retained earnings over the reporting period.
  4. Statement of cash flows: reports on a company’s cash flow activities, particularly its operating, investing and financing activities.statement-of-cash-flows1

*Note on Statement of Cash Flows:

  • The Statement of Cash Flows (SCF) provides pertinent information about a firm?s liquidity.
  • Cash flow may be as important as net profit as an indicator of performance.
  • Bankruptcies have occurred in firms that were reporting positive income. The SCF may signal problems that were not showing up in the income statement.

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