For a certain time period every entity has to take into account their transactions and calculate their profit or loss. The target is not only to find out the result of their business activity but also to find out their financial position. That’s where financial statements come into play. All of those financial statements have something or other in a different way that helps the formation and also the cause of all the concerned parties.
As for here, you have come to learn about what the financial statements are and what their purposes are. Additionally you will be able to learn one more thing and that is the basis of those statements. So here it goes:
Financial Statements Definition
That statement which delivers the profit and loss of one particular financial year (Read accounting year here) by subtracting the expenditure from the revenue.
To derive the profit and loss of that particular accounting period.
Accounting period contingency.
– Single step income statement,
– Multiple step income statement.
The first portion of the income statement deals with the sales revenue and all associated costs with that i.e. cost of goods sold. That provides Gross Income.
Second portion subtracts operating expense from operating revenue. That derives to the Net Income.
In a single step financial statement that is not the case as only Net Income comes out of that.
The statement that shows the current position of the capital that the owner provided after all the additions and subtractions from it.
To determine the owner’s worth in the overall company’s worth.
Owner’s equity statement adds up the net income to the actual worth and then deducts any drawings or, other deductions from it.
It only does provide a balance.
Cash flow statement:
Statement calculating the cash flows and their subsequent increase or, decrease and the impact of that is the cash flow statement.
To determine how the cash balance has changed within the accounting year.
Cash flow statement classifies the cash flows into three broad categories:
– Operating cash flows,
– Investing cash flows,
– Financing cash flows
Each and every one of those records the increase and decrease of that particular one within that accounting year.
The case is not the same with indirect method. It delivers the same result only the division is not made.
This statement can be prepared in two styles:
– Direct method,
– Indirect method.
The list that shows the assets and liabilities altogether and provides the overview of the current condition of the entity.
To give all the concerned parties heads up about the financial condition the entity is in.
This is a list that provides all the insight into company’s current position with all its assets and liabilities, i.e. the funds to pay for what is to pay.
In a balance sheet always the amount of liability and the amount of assets will be similar.
All of these statements are created bearing in mind one whole accounting period (For the whole accounting year) except the balance sheet which is created for just a point of time i.e.one particular day (The last day of the accounting year).
Financial statements are prepared as per IAS 1 and the names have taken a spin after 2007. The current names with their previous ones are:
– Balance sheet to Statement of Financial Position
– Cash Flow statement to Statement of Cash Flows
– Owner’s Equity Statement to Statement of Owner’s Equity
– Income Statement to Statement of Comprehensive Income.
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