Financial Statements

Financial Statements Meaning:
Financial statement is a written report which describes the financial health of a company. It includes an income statement, a balance sheet, cash flow statement and retained earnings. Financial statements are usually compiled on a quarterly and annual basis. These statements are records that provide an indication of an individual’s, organisation’s or business’ financial status. Financial statements are typical used in relation to business endeavour. These statements provide an overview of a business or person’s financial conditions, not only in short term but also in long term. We can define financial statements as all the relevant financial information of a business enterprise, presented in a structured manner and in a form which is easily understood by everyone.

Types of Financial Statements: There are four basic financial statements.
1. Balance Sheet: Balance sheet, also called statement of financial position, is the summary of organisation’s balances. A balance sheet is a statement of financial position at a given point of time. It is the snapshot of company’s financial condition. A company’s balance sheet has three parts: assets, liabilities and ownership equity or we can say that the balance sheet is based on the following accounting model:
Assets = Liabilities + Equity

2. Income Statement, also called Profit and Loss Statement, indicates how the revenue is transformed into net income. The purpose of income statement is to show the managers and investors whether company has earned or lost money during the period reported.

3. Statement of Retained Earnings: Retained earnings appear on the balance sheet and most commonly are influenced by income dividend. Therefore, the statement of retained earnings uses information from income statement and provides information to retained earnings.

4. Cash Flow Statements: The cash flow statement is used in evaluating a company’s ability to pay its bills. A cash flow statement provides – sources of cash, uses of cash and change in cash balance.

It breaks the sources and uses of cash into the following categories:

• Operating activities
• Investing activities
• Financing activities