Types of Different Business Financial Statements
There are four statements used to illustrate the financial position of a business. You can use these statements to monitor the performance of your business throughout every accounting period. If you are looking for financing or investments, you may need to show these financial statements so that potential investors can determine if your company is a responsible investment that will net a reasonable return.
The balance sheet statement is a summary of the company's assets, liabilities and equity. Created to represent the account balances as of a specific date, the balance sheet is based upon the accounting equation that assets are equal to the liabilities plus equity. The asset section contains everything that contributes value to the company, such as inventory, property and cash. Liabilities are all of the expense commitments, including accounts payable, taxes, payroll, loans and other expenses. The equity section reflects the difference between the assets and liabilities.
The income statement illustrates how much money a business has earned over a specific period of time. The statement begins with gross revenue, which is typically the total sales for the period in question. Then, the gross revenue figure is reduced by any deductions for potential returns or discounts. The next section details all of the expenses associated with earning the revenue. Operating expenses, costs associated with manufacturing and other administrative expenses appear in this section. The end of the statement is the net income or net loss figure, which represents the total income for the period less all of the associated expenses.
The retained earnings statement highlights the transactions that have had an effect on the total balance of the retained earnings account. This statement starts with the closing balance of the previous retained earnings statement. It continues with the net income figure for the period, as found on the income statement. The total of any dividends paid out during the reporting period appears below the net income. The final retained earnings figure at the bottom of the statement reflects the sum of the prior balance plus the net income less the total dividends paid out.
The cash flow statement reflects the actual cash in and out of the business over a period of time. It can show the change in the cash balance so that, as a business owner, you can see where your money comes from and how it is spent. In contrast to the income statement that illustrates the monies earned and liabilities incurred, the cash flow statement indicates exactly how much money was received and spent during the period. This statement includes cash flow from operating activities, investing activities and financing activities. You can include an additional section for supplemental transactions if there are any that do not fit in any of the categories.