Accounting standards and industry guidelines tell financial managers and corporate leadership what must go on financial data summaries, including income statements, balance sheets and statements of retained earnings. Taken together, these reports help a company’s communicate its version of the economic story, including its operational soundness, financial stability and fundraising prowess.
Income statement items run the gamut from merchandise costs to selling, general and administrative expenses. Also known as SG&A expenses, the latter charges relate to the cash a business doles out for things like salaries, advertising, insurance, extra-occupational benefits such as maternity and paternity leaves, office supplies and rent. Expenses such as depreciation and amortization don’t involve cash payments. Depreciating an asset means allocating the resource’s cost over many years. Amortization is the depreciation equivalent for intangible assets, such as patents, trademarks and copyrights. On the revenue front, income statement items include sales, fees and investment gains that come from sales and purchases of financial products like stocks, bonds and options.
A balance sheet is also known as a statement of financial condition or report on financial position. This financial data summary has three sections: assets, debts and equity. Assets include everything from cash and marketable securities to money a company expects from customers, prepaid insurance and merchandise. Accountants call these items “short-term assets” because the owner expects to use them within one year. Long-term assets -- those with a liquidity window of several years -- include land, equipment and building. Liabilities are commitments a person or company must fulfill. Examples include salaries, bonds payable, customer advances and loans. Equity items range from common stock and preferred shares to dividend remittances and repurchased shares, also known as treasury stock.
Statement of Retained Earnings
A statement of retained earnings is a transit point for financial managers moving from a balance sheet to an income statement. This is because the retained-earnings report incorporates items that draw on the latter financial data summaries, some of which include retained earnings, common and preferred equity, and dividends. Retained earnings are income a business hasn’t distributed to shareholders over the years, preferring to keep in operating cellars for rainy days. Other names for a statement of retained earnings include statement of shareholders’ equity, equity report and statement of owners’ equity.
Statement of Cash Flows
Under accounting rules, a company must issue four performance data synopses -- the fourth being a statement of cash flows, also called a liquidity report or cash flow statement. This report offers a glimpse into the way a company spends its money, how much cash it allocates to operating activities and decision-making tools it relies on to track monetary movements. A liquidity report shows cash flows from operating, investing and financing activities.