Types of Financial Statements
The financial statements
are tools that suggest the business persons to pause for the time being and take a snapshot of their business transactions (i.e. how well their companies are doing). Generally, the reports of the company’s performance are prepared in very short period of time after the end of every month.
The financial statements
provide a general idea of a business or person's financial condition; it could be of short term as well as long term that depend upon your need. So, all the significant financial information of a company, presented in a well arranged way (that is easy to understand), are known as the financial statements.
There are four following types of financial statements and each financial statement describes
different features of the company’s various operations:
- The Balance Sheet: It is a sort of financial statement that keeps account of company’s net worth. However, if business is run by two or more than two partners then it also maintains the records of individual’s equity and for the bigger public organizations, it presents stockholder equity. This balance sheet has two sections and both of them must be balanced. First section gives the acczount of business assets (such as cash, equipments, inventory, furniture, buildings, land and many others) and the second one keeps the account of owners’ equities and liabilities.
- Income Statement: It is commonly known as profit and loss statement (or simply P & L); it gives the data of company’s profit. This income statement is classified into two sections – the first one illustrates the gross profit (i.e. sales - cost of goods sold) and some other incomes. The second one keeps the data of expenses. After doing this, to calculate the net profit before the tax, expenses are deducted from the gross profits + other incomes. So, now the profit or loss depends upon the end result - if the total expenses are lesser than total income then it is net profit and if the total expenses are greater than total income then it is net loss.
- Statement of the Cash Flows: It keeps the account of cash in and cash out of the company. However, this sort of statement covers both the current operating results and other associated changes in the balance sheets.
- Statement of Retained Earnings: It is such kind of financial statement that explains the changes in company’s retained earnings over the reporting period.
Hence, to get the accurate financial data of a company’s performance, first you need to collect these financial statements and then analyze all four. Missing of any one can hamper the report; so, if you are planning to own any business then it is beneficial for you to consider all financial statements mentioned above. It will give you the correct financial condition of the respective business.