Types of Accounting Statements

#9

Topic:

Financial statements - consolidated reports of thousands of individual transactions

Function:

They summarize a company's

• Operations
• Financial position
• Cash flows over a period

“Show me the money!”

Types:

Income statement

• Aka Profit and Loss (P&L) Statement
• Reveals the financial performance of an organization for the entire reporting period
• Income: what the business has earned over a period (e.g. sales revenue, dividend income)
• Expenses: cost incurred by the business over a period (e.g. salaries and wages, rental charges, depreciation)
• Net profit or loss = Expenses - Income
• Begins with sales, then subtracts out all expenses incurred during the period to arrive at a net profit or loss
• Earnings per share (EPS) may also be added if the financial statements are being issued by a publicly-held company
• Usually considered the most important financial statement, since it describes performance

Balance sheet

 

• Aka Statement of Financial Position
• Shows the financial position of a business as of the report date
• Covers a specific point in time
• Aggregated into assets, liabilities, and equity
• Assets: something a business owns (e.g. cash, inventory, plant and machinery)
• Liabilities: something a business owes (e.g. creditors, bank loans)
• Equity: what the business owes to its owners or stakeholders
• Balance sheet must balance: Assets - Liabilities = Shareholder's Equity
• Line items within the asset and liability classification are presented in their order of liquidity: most liquid items stated first

Cash flow statement

• Reveals cash inflows and outflows experienced by an organization during the reporting period
• Broken down into operating activities, investing activities, and financing activities
• Operating Activities: represents cash flow from primary activities of a business
• Investing Activities: represents cash flow from purchase and sale of assets other than inventories (e.g. purchase of a factory plant)
• Financing Activities: represents cash flow generated or spent on raising and repaying share capital and debt along with the payments of interest and dividends
• Can be difficult to assemble
• Issued usually only to outside parties