Financial Statements

What are the Financial Statements?

Financial statements are reports prepared by a company’s management to present the financial performance and position at a point in time. These are reports prepared and issued by company management to give investors and creditors additional information about a company’s performance and financial standings.

Financial statements are the formal records of the financial activities and position of a business, person or other entity.

The relevant information is presented in a structured manner and in a form which is easy to understand and analyse.

Why are financial statements prepared?

The main purpose of Financial Reporting is to

 Provide the entity’s financial information

 Provides information related to the target companies that investors need to obtain and assess whether they should invest in, increase the existing investment, or withdraw their investment.

 Helps in predicting the entity’s future cash flow.

 Help creditors to assess the creditworthiness of the entity.

 Help employees to assess the stability of its entity.

 Help the government agency to assess the tax return.

 Help bankers to make risks assessment.

 Users by competitors to assess the competitiveness in terms of financial straight.

What does Financial Statements include?

 A general-purpose set of financial statements usually includes:

· Income Statement

· Balance Sheet

· Statement of Stockholders Equity

· Statement of Cash Flow

Income Statement

• Income Statement also is known as Earning Statement or Profit and Loss statement provides the users about how much the entity generates the sales revenues for the reporting period, along with others important information like the cost of goods sold, gross profits, and more importantly, the net incomes for that period of time.

Balance sheet

• In the Balance sheet also known as Statements of financial position, the users could see and understand about entity’s assets, liabilities, and equities. With that information, the users can primarily assess how financial healthiness the entity is.

It is like a photograph that captures the financial position of the entity at a particular point of time.

Statement of equity Stockholders 

• It tells the users about the entity’s equity information along with the changing of equity for the period as the result of the entity’s performance. This statement also informs the users how much the shareholders injected their funds into the entity

Statement of Cash Flows 

•  The Statement of Cash Flow shows the cash inflows and outflows from operating, investing and financing activities. It helps the users to know about the ending cash balance of the entity at a particular point of time.

Here’s a sample financial statement template that shows the order of how each statement works together to report the full economic position of a company beginning with the balance sheet.

• Beginning Balance sheet - An opening balance sheet contains the beginning balances at the start of a reporting period These balances are usually carried forward from the ending balance sheet for the immediately preceding reporting period. 

l Profit or Loss In Income Statement - It is Calculated by totalling all the Business revenues and subtracting the expenses that are related to the revenue

l Stockholders’ Equity - Equity contribution means the money received by the company from the transactions with the Shareholders whereas Distribution to shareholders means the dividend paid by the company to the shareholders as the return on their investments.

l Ending Balance sheet - A balance sheet lays out the ending balances in a company's asset, liability and equity accounts as of the date stated on the report.