What is “The FInancial Statement”?

What is “The Financial Statement” ?
 
 
 
Financial Statement if Formal Report of Financial Performance, issued by every entity at every specific period like Quarterly or yearly summary of performance by entity.
 
Financial Statement normally covered following statement/report:
  • Income Statement (Profit & Loss Account)
  • Cash Flow Statement
  • Statement of Financial Position (Balance Sheet)
  • Statement of Change in Equity.
This statements normally prepared by the company by following IFRS or GAPPs.
 
Let’s Understood each statement in the brief
 
Income Statement (Profit & Loss Account)
The income statement covers a specific period, which is a year for annual financial statements and a quarter for quarterly financial statements. The income statement provides an overview of revenues, expenses, net income and earnings per share. It usually provides two years of data for comparison.
 
 
Cash Flow Statement
The cash flow statement actually shows us how much company earning hard money, by different activities such as Operating Activity, Investing Activity & Financial Activity. Operating activities include cash flows made from regular business operations. Investing activities include cash flows due to the buying and selling of assets such as real estate and equipment. Financing activities include cash flows from debt and equity. This is where analysts can also find the amount of dividends paid and/or dollar value of shares repurchased
As Income statement mostly prepares on mercantile method, it can not show the actual cash profit earn by the company. Because of that reason and broad understanding of actual cash inflow Cash Flow statement required.
There are two methods to prepare cash flow statement
A) Direct Method
B) Indirect Method
 
Mainly companies following IFRS and GAAPs due to that all companies required to prepare cash flow in Indirect Method.
In this method Cash Flow statement show as a Reconciliation of Profit as per Income Statement and Cash Balance in Statement of Financial Position.
 
 
 
Statement of Financial Position (Balance Sheet)
The balance sheet provides an overview of assets, liabilities and stockholders’ equity as in a summary form. The date at the top of the balance sheet tells you the position as on that date, which is generally the end of the Financial year.
The balance sheet equation is
Assets = liabilities + stockholders’ equity
 
Because assets are paid for with either liabilities, such as debt, or stockholders’ equity, such as retained earnings and additional paid-in capital. Assets are listed on the balance sheet in order of liquidity. Liabilities are listed in the order in which they will be paid. Short-term or current liabilities are expected to be paid within the year, while long-term or noncurrent liabilities are debts expected to be paid after one year.
 
Statement of Change in Equity.
A Statement of changes in equity and similarly the statement of changes in owner’s equity for a sole trader, statement of changes in partners’ equity for a partnership, statement of changes in Shareholders’ equity for a company is one of the four basic financial statement and also mandatory in IFRS and GAAPs.
 
The statement explains the changes in a company’s Share Capital, accumulated reserves and retained earnings over the reporting period. It breaks down changes in the owners’ interest in the organization, and in the application of retained profit or surplus from one accounting period to the next. Line items typically include profits or losses from operations, dividends paid, issue or redemption of shares, revaluation reserve, and any other items charged or credited to accumulated other comprehensive income. It also includes the Non-Controlling Interest attributable to other individuals and organizations.
The statement is expected under the generally accepted accounting principles and explains the owners’ equity shown on the balance sheet,
where: owners’ equity = assets − liabilities
 
 
This is the just overview of Financial Statement. If you want to know more about this just wait for my next update I’ll try to explain each Statement in detail with proper explanation and example as per IFRS norms.
 
Thank You.
Gaurang Jani.

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