Question

Identify the major financial statements and other means of financial reporting.

Answer 1

Solutions:

There are basically four major financial statements which a business uses, They are

1. Income Statement
2. Balance Sheet
3. Statement of Cash Flows
4. A statement of changes in owners' equity or stockholders' equity / Statement of retained earnings

An Income statement is a representation of a company’s revenue and expense transaction during the period. Revenues increases the assets and expenses decrease the asset. When the revenue exceeds the expenses, it results in Net Income. If the company finds itself in an undesirable situation, where the expenses are more than the revenue, it results in a loss.

A Balance Sheet, lists down all the assets and the liabilities of the company. It gives a bird’s eye view of the financial condition and demonstrates where the company stands, in financial terms, at a specific date.

Statement of Cashflows, summarizes all the cash transactions, namely cash receipts and cash payments made by the company during a particular period. The statement classifies the various cash flows into three categories - operating, investing and financing activities. The input for this statement is obtained form Balance Sheet and Income Statement.

A Statement of changes in owners equity reconciles the opening balance of the period equity with its closing balance. It includes Sale or redemption of shares, payment of dividends and profit or loss during the period.

Other means of financial reporting may include the CEO’s letter or supplementary schedules in the corporate annual report, prospectuses, and reports filed with government agencies.