Financial statements

Four Types of Financial Statements

The four main types of financial statements are:

1.      Statement of Financial Position 

2.      Income Statement 

3.      Cash Flow Statement 

4.      Statement of Changes in Equity

1.      Statement of Financial Position 

        Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an entity at a given date. It is comprised of the following three elements:

Assets: Something a business owns or controls, e.g. cash, inventory, plant and machinery, etc.

Liabilities: Something a business owes to someone, e.g. creditors, bank loans, etc.

Equity: What the business owes to its owners. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding

liabilities. Equity therefore represents the difference between the assets and liabilities.

View detailed explanation and Example of Statement of Financial Position

2.      Income Statement 

            Income Statement, also known as the Profit and Loss Statement, reports the company's financial performance in terms of net profit or loss over a specified period. Income Statement is composed of the following two elements:

Income: What the business has earned over a period, e.g. sales revenue, dividend income, etc.

Expense: The cost incurred by the business over a period, e.g. salaries and wages, depreciation, rental charges, etc.

Net profit or loss is arrived by deducting expenses from income.

View detailed explanation and Example of Income Statement

The income statement, also known as the profit & loss statement, includes all income and expenses accounts over a period of time. The financial statements shows how much money the business will make after all expenses are accounted for. An income statement does not reveal hidden problems, like insufficient cash flow. Income statements are read from top to bottom and represent earnings and expenses over a period of time.

3.      Cash Flow Statement 

          Cash Flow Statement, presents the movement in cash and bank balances over a period. The movement in cash flows is classified into the following segments:

Operating Activities: Represents the cash flow from primary activities of a business.

Investing Activities: Represents cash flow from the purchase and sale of assets other than inventories, e.g. purchase of a factory plant.

Financing Activities: Represents cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends.

View detailed explanation and Example of Cash Flow Statement.

4. Statement of Changes in Equity

                  Statement of Changes in Equity, also known as the Statement of Retained Earnings, details the movement in owners' equity over a period. The movement in owners' equity is derived from the following components:

Net Profit or loss during the period as reported in the income statement.

Share capital issued or repaid during the period.

Dividend payments.

Gains or losses recognized directly in equity, e.g. revaluation surpluses.

Effects of a change in accounting policy or correction of accounting error.

View detailed explanation and Example of Statement of Changes in Equity.