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Four basic for financial statements
Statement of Financial Position:
also referred to as a balance sheet, reports on a company's assets, liabilities, andownership equity at a given point in time.
Statement of Comprehensive Income:
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. A Profit & Loss statement provides information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.
Statement of Changes in Equity:
explains the changes of the company's equity throughout the reporting period
Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities
Purpose of financial statements by business entities
"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."
Financial statements may be used by users for different purposes:
- Owners and managers require financial statements to make important business decisions that affect its continued operations.
- Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.
- Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions
- Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.
Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company
Media and the general public are also interested in financial statements for a variety of reasons.
The Four Financial Statements
Balance Sheet - statement of financial position at a given point in time
Income Statement - revenues minus expenses for a given time period ending at a specified date.
Statement of Owner's Equity - also known as Statement of Retained Earnings or Equity Statement.
Statement of Cash Flows - summarizes sources and uses of cash; indicates whether enough cash is available to carry on routine operations
Balance Sheet
The balance sheet is based on the following fundamental accounting model:
Assets = Liabilities + Equity
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