The financial statement reflects the financial position and profit loss and cash status of any institution. The financial statements are the formats, which provide financial data to be listed and understood.
Financial statements should generally be prepared in accordance with approved accounting principles.
Because, if each business accounting book is used in the preparation of books and in the presentation of financial statements. Its own built-in principles can lead to misunderstanding among these information users.
Thus, the Information given by financial statements means the same for all related parties. For this, writers from around the world have developed some such rules and traditions.
This represents the fundamental ideas of money in the theory and practice of good accounting, which is known as General Accepted Accounting Principles or GAAP.
Types of Financial Statements for Reporting and Analysis
There are four main types of financial statements for reporting, which are as follows:
1. Balance Sheet or Position Statement
Balance Sheet or Position Statement is the most important statement in financial statements.
It is usually called:
- Statement of financial position.
- Statement of assets and liabilities.
- Statement of instruments and obligations.
- Assets, liability and owner’s and financial balance sheet, etc.
There are four types of financial statements Canada, the US, the UK, and Australia.
Thus, The balance sheet is a screen picture of the financial position of a going concern at a certain moment.
In a financial time period, the balance sheet shows information related to property, liability, and interest of owners.
Thus, the balance sheet is the format of the financial position of a business on a certain date, its assets and liabilities, capital, accumulation, and balance of other accounts are shown on book value.
2. Income Statement
The format of the financial statement of profit and loss shows the difference between the revenue and expenses of an accounting period of a business is considered as a net profit or loss of that period.
Thus, the profit loss statement represents the revenue and Expenses of a certain period of business and later shows the final amount of profit or loss at the end of the accounting period.
Therefore, the Statement of profit and loss represents the status of the profit or loss of any institution. And the business is moving in which direction.
3. Cash Flow Statement
A statement of cash flow is a description of the source and uses of cash and cash equivalents of business in a specific period
The Cash Flow Statement is an explanation that shows the status of change in the institution’s cash in between the period from one period to another.
The Cash Flow Statement explains the reasons for the change in cash in between periods.
Thus, the cash flow statement is prepared on the basis of cash funds. Which are operating activities, financing activities, and investing activities (cash flow from sources).
4. Statement of Changes in Equity
This report shows the changes in a company’s Equity, issuance or purchase of shares, bonds, dividends issued, owner’s withdrawals of capital, treasury share transactions, and retained earnings over the reporting period.
Thus, In the United States, this is called a statement of retained earnings and it is required under the U.S. Generally Accepted Accounting Principles (U.S. GAAP).
Therefore, the statement is expected under the GAAP and explains the owners’ equity shown on the balance sheet, where:
owners’ equity = assets − liabilities
Thus now you can understand how the importance of these four types of financial statements for reporting in the business.
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