Financial statements refer to a set of reports issued by a company that present its financial activity and status.

The three main reports one will find in a set of financial statements includes a balance sheet, an income statement, and a statement of cash flows.  In addition, a statement of retained earnings may be present or this may be incorporated as part of the income statement.

Companies will issue financial statements for several reasons the most important being so owners and managers can assess how the business is performing and make strategic planning decisions about the company’s future.  Financial statements may also be required by banks, governmental units, or investors. read more

A balance sheet is a snapshot picture of what a company owns and what a company owes.   It is considered a snapshot because it looks at a company at a specific point in time.

Another name for a balance sheet is a statement of financial position.

The major components of a balance sheet are it’s assets (what it owns), liabilities (what it owes), and equity (the net difference between the assets and liabilities).

A balance sheet is one of the major parts of a complete set of financial statements.   The other parts of a set of financial statements are an income statement (or profit and loss) and a statement of cash flows. read more

An income statement is a report that shows the results of a company’s operations for a specific period of time.

An income statement can also be called a “profit and loss statement”.

The income statement is generally made up of two major components: income and expenses.  The expenses are deducted from the income and the difference is reported a either the net income (income is higher than expenses) or net loss (expenses are higher than income) for the period being reported.

A statement of cash flows presents the sources and uses of cash for a business.

While a balance sheet shows what a company owns and owes and an income statement shows what a company has earned and expended, the statement of cash flows shows where cash came from and where it went.

In general, there are three components to the statement of cash flows:

Operating activities – This is the cash flow from the primary business activity of a company.

Investing activities – This is the cash flow from the purchase and sale of assets. read more