Thursday, February 18, 2010

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

The principal Financial Statements are:
Balance Sheet
Income Statement (or Profit and Loss Statement)

However, the complete set of Accounting Reports also includes:
Cash Flow Statement
Statement of Owner’s Equity / Statement of Retained Earnings

Financial Statements are the end product of the whole accounting process. The purpose / objective of financial statements is to provide information about the financial position, performance, and changes in financial position of the business enterprise.

BALANCE SHEET is a financial statement which shows at a specific date the financial position of the business enterprise. It shows in an organized manner the financial data in three main sections i.e. Assets, Liabilities and Owner’s Equity at a given date. It reflects the Accounting Equation.

INCOME STATEMENT OR PROFIT AND LOSS STATEMENT shows profitability of the business enterprise over a period of time say preceding year. It provides details of Revenues/Incomes/Gains and Costs/Expenses/Losses of the business enterprise for a time interval or period of time, and the resulting Net Profit or Net Loss. By matching the revenues against expenses, it shows the net result of operations for a period.

CASH FLOW STATEMENT explains changes in cash and cash equivalents (i.e. receipts / generation / inflow and payments / utilization / outflow) of the business enterprise. It reports about the Cash Flow related to its operating, investing and financing activities.

STATEMENT OF OWNER’S EQUITY / RETAINED EARNINGS explains the changes in the amount of owner’s equity / retained earnings over the same period of time.

As the information / figures in the above financial statements are much in summarized form, these are also supported by Notes to the Accounts or Notes to the Financial Statements, giving further details and explanations. That is why these Notes are also considered an integral part of Financial Statements.

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