Financial Statements show how a business is doing financially. They help stakeholders understand the performance and financial position of the business.
There are three main types of financial statements:
- The Balance Sheet shows, at a specific point in time, the Assets (what you have in the business) and balances that against where the funding comes from: borrowing from sources such as banks (Loans) and suppliers (Payables), or from investing (Capital Stock), and from reinvesting profits in the company (Retained Earnings). The two totals must balance.
|
Balance Sheet Equation: Total Assets = Total Liabilities + Equity
|
- The Income Statement looks at how much money the business has made (Sales Revenue) and how much money it has spent (Costs and Expenses) over an operating period (month, quarter, year). The ‘bottom line’ of the Income Statement shows the profit or loss for the period.
|
Income Statement Equation: Sales Revenue – Expenses = Profit
|
- The Cash Flow Statement is used to track the sources and uses of Cash; It is not concerned with Profit. It looks at how Cash flows into and out of the business over an operating period (month, quarter, year).
|
Cash Flow Statement Equation:
CF from Operations + CF from Investing + CF from Financing = Net Change in Cash
|
Note: See Cash Flow Statement for the actual analysis.
term list.