Financial Statements

Financial Statements

Four Basic Financial Statements

The four basic and essential financial statements are described below:

Balance sheet (statement of financial position)

Balance sheet could be defined as the final statement, which serves the purpose of defining one's financial position, especially in business, at one particular point of time. It should be noted that the balance sheets are generally presented at the end of the month or year and assist in analyzing and reviewing the financial statement of the ongoing financial year.

Income statement

Income statement is used to present the income and the expenses of the company, thus providing an accurate presentation of the finances of the company and highlighting the balance between the earnings and the expenses.

Cash flow statement

Cash flow statement is meant for operating, investing and financing the flow of cash, and can be used in either direct or indirect method. It also provides an exact presentation of the changes in balance sheet and the income calculated after cash and equivalents of cash.

Statement of changes in owners' equity or stockholders' equity

The statement of changes in owners' equity or stockholders' equity can also be defined as the financial statement that provides details of the equity portion present in balance sheet and also includes retained earnings, along with the preferred and common shares in the financial position of the organization.

Purpose of Basic Financial Statements

The following paragraphs would highlight the purpose of the above mentioned financial statements:

Balance sheet is used to sum up all the financial and the economic resources and assets of an organization, along with the obligations on the organization, which includes the debts as well as the long- term liabilities on the organization and the total amount of economic resources possessed by the owner of the organization at one particular point of time (Taparia, 2004).

Income statement serves the purpose ...