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What is financial statement

what is financial statement

The Four Financial Statements

Businesses report information in the form of financial statements issued on a periodic basis. GAAP requires the following four financial statements:

  • Balance Sheet - statement of financial position at a given point in time.
  • Income Statement - revenues minus expenses for a given time period ending at a specified date.

  • Statement of Owner's Equity - also known as Statement of Retained Earnings or Equity Statement.

  • Statement of Cash Flows - summarizes sources and uses of cash; indicates whether enough cash is available to carry on routine operations.
  • Balance Sheet

    The balance sheet is based on the following fundamental accounting model:

    Assets = Liabilities + Equity

    Assets can be classed as either current assets or fixed assets. Current assets are assets that quickly and easily can be converted into cash, sometimes at a discount to the purchase price. Current assets include cash, accounts receivable, marketable securities, notes receivable, inventory, and prepaid assets such as prepaid insurance. Fixed assets include land, buildings, and equipment. Such assets

    are recorded at historical cost, which often is much lower than the market value.

    Liabilities represent the portion of a firm's assets that are owed to creditors. Liabilities can be classed as short-term liabilities (current) and long-term (non-current) liabilities. Current liabilities include accounts payable, notes payable, interest payable, wages payable, and taxes payable. Long-term liabilities include mortgages payable and bonds payable. The portion of a mortgage long-term bond that is due within the next 12 months is classed as a current liability, and usually is referred to as the current portion of long-term debt. The creditors of a business are the primary claimants, getting paid before the owners should the business cease to exist.

    Equity is referred to as owner's equity in a sole proprietorship or a partnership, and stockholders' equity or shareholders' equity in a corporation. The equity owners of a business are residual claimants, having a right to what remains only after the creditors have been paid. For a sole proprietorship or a partnership, the equity would be listed as the owner or owners' names followed by the word "capital". For example:

    Sole Proprietorship:

    Category: Forex

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