Question

Question 1 In brief point form, outline the primary differences between the three major types of financial statement. (Max. 10 lines)

Answer 1

There are three financial statements. 1. Income Statement 2. Balance sheet 3. Cash flow statement. Each statement has particular purpose to be prepared and they provide different types of information. The primary differences are as follows Income statement provides operating results of the company or any entity. It contains revenues generated during the period, expenses incurred gross margin and net income earned for that reporting period. A Balance Sheet provides clear information about the financial position of the company as on the date of preparation. It details current assets, non-current assets, current liabilities, long term liabilities and stockholders' equity. The reader of the balance sheet get understanding about the financial position of the company or the entity. A Cash Flow Statement provides information about the sources of cash generated and expensed by classifying the activities into Cash Flow from Operating Activities, Cash Flow from Investing Activities and Cash Flows from Financing Activities. Each financial statement i.e.; Income Statement, Balance Sheet and Cash Flow Statement has its own role in providing information to reader of the financial statement. We cannot replace one with another one.