Financial statements are documents that give an overview of the financial condition of a business entity. Here is some useful information on what these statements actually incorporate; samples of the different financial statements can also be found in this article.
Financial statements are used for recording the business activities and transactions of business entities. These statements are known as accounts, however, accountants prefer using the term ‘financial statement’. One gets an idea of the assets and liabilities of a company through financial statements. The information about transactions and turnover of a company obtained through this statement gives an idea of its financial condition.
What are Financial Statements?
These are records/statements used for maintaining the data of business/financial activities of an organization or individual. The definition of financial statement can be simply stated as, a document which provides an overview of the financial condition of a business entity. Financial statements are presented in a proper, structured format and the information given through them is easy to comprehend.
The 4 basic types of financial statements are income statement, balance sheet, cash flow statement, and the statement of retained earnings. The analysis of these statements helps in understanding the current financial condition of an organization. Statements prepared for dummies are simple in their format. Income statement for dummies include elements like sales, net revenue, gross income, net income, gross profit, net profit, etc.
Financial Statements Examples
The examples mentioned below are the 4 basic statements which provide information about transactions taking place in an organization. The templates presented below make use of the format specified by Generally Accepted Accounting Principles (GAAP) of the United States of America.
This document presents a summary of an organization’s balances. Liabilities, assets, and ownership equity of a company are listed in the balance sheet. The balance sheet is one of the important financial statements of business entities. Information presented in the balance sheet shows data particular to the point of time when it is generated. Format of the balance sheet of a small organization is presented below.
|Fixed Tangible Assets||–|
|Long term Liabilities||–|
|Owner’s Equity Before Deduction||–|
|Long term Liabilities||–|
It is known as the ‘Profit and Loss Statement’. The income statement presents data regarding the transformation of revenue to net income. The expenses and costs incurred against revenue are displayed along with the taxes and write-offs. The write-offs include information about amortization and depreciation of assets. The objective or purpose of preparing an income statement is to understand whether a company has recorded profit or loss during a given period of time. The income statement includes information about net income earned and is calculated by subtracting expenses from revenue. The following equation and template gives us an idea about how income statements are generated.
Net Income = Revenue – Expenses
|Cost of Goods||–|
|Revenues – Expenses||–|
Cash Flow Statement
In order to determine the cash flow in an organization, one has to consider factors like financing, investment, and core operations. The current operations taking place in an organization and the changes in the balance sheet which occur due to these operations recorded in the cash flow statements.
|Cash Flow from Investing||–|
|Operations Cash Flow||–|
|Cash Flow from Financing||–|
Statement of Retained Earnings
The statement of retained earnings provides us with information about changes that take place in the retained earnings of an organization over a period of time. The term ‘retained earnings’ refers to part of net income that is not distributed in the form of dividends but retained by the company. The retained earnings statements can be presented along income statements in combination with balance sheets or separately. The statement is needed whenever a comparative study of income statements and balance sheets is required to be done. The following equation explains the concept of retained earnings in a better manner.
Ending Retained Earnings = Beginning Retained Earnings – Dividends Paid + Net Income
The financial statements for non-profit organizations should include details about activities, the financial position, and cash flow information. The financial statement samples given above thus explain how records of financial transactions are maintained.