balance sheet

What Are Financial Statements?

Whether you are a shareholder, trader, professional, or finance student, you need to know what financial statements are. These statements give an accurate picture of the financial affairs of any organization in a given year. Financial analysts and accountants prepare the company’s financial statements using the collected business data. All financial statements should be reported following arranged and standardized accounting principles so that all reports can harmonize at all levels. Here are the types of financial statements you should know:

Balance Sheet

It is a financial report that gives a general picture of all assets, liabilities, and shareholders’ equity. Several organizations use stakeholder’s capital as a distinct financial report. Nevertheless, it comes with the balance sheet. When preparing a balance sheet, you need to remember that assets equal to liabilities and shareholders’ equity. Notably, making a balance sheet a complicated procedure that needs accuracy. Therefore, accountants should ensure that each record is accurately reported so that total assets equates to total liabilities and stockholders’ equity.

Income Statement

It is a financial report that everyone should look at. The income statement is different from a balance sheet as it is about revenues and overheads. It begins with gross sales or proceeds, then sales returns or discounts are deducted from it to obtain net sales. The net sale is for ration analysis. Additionally, one can earn gross profit by subtracting the costs of goods sold from net sales. Further, you get earnings before interest and taxes by deducting operating expenses from gross profit. Lastly, you obtain net income that is profit after tax through a deduction of income taxes from earnings before interest and fees.

Cash Flow Statement

This is also an essential financial report that each handling finances should know. There are three distinct reports of a cash flow statement. For example, the statements from operating activities, investing activities, and financial activities. Operations cash flow is the money generated from the business’s primary processes. Similarly, investment activities generate the cash inflows and outflows associated with the organizations’ investments such as purchasing properties, plants, or equipment. Additionally, financial cash flows recount the cash influxes or outflows related to the company’s liabilities and equity, such as buyback of shares or loan repayments.

Statement of Deviations in Shareholders’ Equityincome statement

It provides a summary of variations in the stakeholders’ equity in a specified period. It analyses the shareholder’s profits, what the company receives, and shares that are bought back to the organization.