Definition
Financial statements are records that show the detail of entity’s financial info including liabilities, assets, income, equity, expenses, cash flow, and shareholders contribution among other related information. These written statements represent the financial power, performance, and liquidity of any firm. The Financial statements also require an annual audit by professional auditors, and they are presented hand-in-hand with other relevant information in yearly entity report.
Financial statements are majorly used by investors, entity’s management, shareholders, significant consumers, significant vendors, stock exchanges, government authorities, and other related stakeholders.
Four main Types of Financial Statement
Here are the four primary types of financial statement:
1.Statement of Financial Statements
Financial statements are commonly known as the Balance Sheet. It shows the balance of liabilities, assets, and equity at the end of a given date. It also shows the values of net-worth of an entity. One can get the net-worth by taking out liabilities of the overall assets. A balance sheet is composed of the following here elements.
- Assets
These are resources owned by an entity legally and economically. For example, land, buildings, cars, inventory among other items. The assets are further classified into two, Current Assets and non-current assets. Current assets include the short-term assets such as petty cash, cash on hand, work in progress, prepayments, finish goods and anything else that can be consumed within a year from the reporting date. Non-current current assets on the other hand include tangible and intangible assets that can be consumed in more than a year after the reporting date. These assets include building, land, and machinery and computer equipment.
- Liabilities
These are requirements that an entity owes to other entities or persons. For example, bank loan, credit purchases, tax payable, interest payable, and overdraft. Just like assets, liabilities are categorized into two; Current Liabilities and Non-current liabilities. Liabilities are composed of the balance sheet items, and they denote the amount at the close of an accounting period.
- Equity
Equity is what the business owes its owners. It represents the total amount that remains in a company after the assets are used to pay off the outstanding liabilities. It, therefore, represents the difference between the assets and liabilities. The items in equity are retained earnings, share capital, preferred stock, common stock and other accumulated income.
Statement of Financial Statements Templates
2.Income Statement
It is also known as the profit and loss. It primarily reports three significant financial information entities for a specified period. This information includes revenues, profit & loss, and expenses for the specific period. It allows the users to measure the financial performance of an entity from time to time with that of the rivals. It is composed of the following elements:
- Revenues
It refers to what a business earns in a particular period. The revenues also are known as income includes sales revenue and dividend income.
- Expenses
These are operational costs a company incurs for a specific accounting period. They range from operational costs like salaries and wages, utilities, rental charges, depreciation, transportation expenses to tax expenses and interest costs.
- Profit or Loss
It refers to what one gets after deducting expenses from the revenues. If you get revenues that are higher than the expenses, then you have a profit. Else, if you have revenues that are lower than the expenses, then you have a loss.
Income Statement Templates
3.Cash Flow Statement
Cash flow statement shows the movement of an entity’s cash and bank balances over a period. The movement of cash flow is categorized into the following sections:
- Operational activities
This one denotes the cash flow from the main operations of a business.
- Investing activities
It shows the cash flow from the point of buying and selling the assets other than the inventories.
- Financing activities
It shows the cash flow made or used on raising and reimbursing share capital and debt together with the disbursements of dividends and interest.
Cash Flow Statement Templates
4.Statement of Changes in Equity
This financial statements show the shareholders’ contribution and movement in equity. It also represents equity balance at the close of the accounting periods. The info that is shown here include classification of total share capital, retain earning, dividend payment, and other related earnings. Lastly, if the balance sheet and income statements are rightly prepared, the statement of change in equity will also be correct.
