Primary Financial Statements
Basic financial statements:
- Balance Sheet
- Income Statement
- Statement of Retained Earnings
- Statement of Cash Flows
Primary financial statements answer basic questions including:
What is the company’s current financial status?
What was the company’s operating results for the period?
How did the company obtain and use cash during the period?
The Balance Sheet
Summary of the financial position of a company at a particular date.
Assets: cash, accounts receivable, inventory, land, buildings, equipment and intangible items
Liabilities: accounts payable, notes payable and mortgages payable.
Owners’ Equity: net assets after all obligations have been satisfied.
The Income Statement
Shows the results of a company’s operations over a period of time.
What goods were sold or services performed that provided revenue for the company?
What costs were incurred in normal operations to generate these revenues?
What are the earnings or company profit?
Revenues
Assets (cash or AR) created through business operations
Expenses
Assets (cash or AP) consumed through business operations
Net Income or (Net Loss) == Revenues – Expenses
Statement of Retained Earnings
An additional financial statement that identifies changes in retained earnings from one accounting period to the next.
Statement of Cash Flows
Reports the amount of cash collected and paid out by a company in operating, investing and financing activities for a period of time.
- How did the company receive cash?
- How did the company use its cash?
- Complementary to the income statement.
- Indicates ability of a company to generate income in the future.
Cash inflows
- Sell goods or services
- Sell other assets or by borrowing
- Receive cash from investments by owners
Cash outflows
- Pay operating expenses
- Expand operations, repay loans
- Pay owners a return on investment
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