Every quarter, a company must create financial statements regarding its business activities. These statements must give an informed view into the operations of the company and the overall financial health of the company. The company must follow certain procedures in accounting for its operations, investments and financing activities. Every transaction should be accounted in developing a company's financial statements.
Types of Financial Statements
At the end of every financial period, a company must submit several statements that give a complete overview of the company's activities. Generally, these statements are filed on a quarterly basis, though firms may elect to file these statements on a monthly or annual basis instead. The main financial statements of a company are known as the income statement, the balance sheet and the cash flow statement. Each document gives a viewpoint into the firm's activities, but taken all together, these documents should provide an overall outlook on the company's current activities and potential for future growth.
The income statement is the first of the financial statements to be created. The income statement lists all of a company's revenues and expenses as it relates to income-generating activities. The revenues would be the sales that the company generates. The expenses would cover various operating items, such as the cost of inventory, utilities and rent related to the company's working space, and advertising expenses, among others. The end result of the income statement allows you to see the net income of the company, which you can analyze against the firm's sales, debt and expenses if desired.
The Balance sheet, generated after the income statement, will list all of the assets, liabilities, and equity of the company.
A company's assets generally include cash on hand, accounts receivable, inventory, and long-term assets such as equipment, land, or property.
A company's liabilities generally refer to the short -term debt and normal operating expenses, such as the bills paid each month by the company or amounts payable from operating or financing activities.
A company's equity is characterized as the amount the can be converted to ownership of the company in question, and what the approximate value of that equity would be. Larger companies may also issue a statement of shareholders' equity to break down the types of financing done.
Cash Flow Statement
The final main financial statement generated is the Cash Flow statement. This document details all of the company's activities that are related to cash inflow or outlays. The cash flow statement breaks down these types of activities in three groups.
Operating activities are transactions that affect the everyday operations of the company, such as the purchase of inventory to generate revenue or payroll expenses.
Investing activities involve the addition of long-term assets which are not necessarily charged as expenses, such as the purchase of equipment or investments in other companies.
Financing activities involve the receipt of cash in exchange for bonds or other long-term holdings of the company, such as the issuance of stock.