Thursday 28 August 2014

What is a Financial Statement?

A financial statement is a formal record of financial activities of a person, business or an entity. It is a financial report which quantifies a company or a person’s financial strength, liquidity and performance.

There are four kinds of financial statements-balance sheet, income statement, cash flow statement and statement of changes in equity.

Balance sheet presents the financial condition of an entity at a specified period. It comprises of three elements: assets, equity and liabilities. The income statement reports the financial performance of a company or a person in terms of net loss or profit over a given time. Also known as profit and loss statement, it comprises of two elements: expense and income. Cash flow statement is the movement in cash and bank balances over a specified time. This movement is classified into different segments like operating activities, financing activities and investing activities. Last but not the least; is the statement of changes in equity, which is also called statement of retained earnings. It details the movement in the equity of the owners over a certain period. This movement is derived from the components like net profit or net loss during a given period as reported in income statement, dividend payments, share capital repaid or issued at that period, losses or gains recognized in equity and effects of change in the accounting policy.

A relevant financial report needs to be presented by every company, person or entity and proactive accountants can help companies and individual clients in preparing these reports. For big corporations, these reports may be a bit complex but professional accounts can present them in a structured way and in an easy to understand form.

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