Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.
The four types of financial statements are as follows:
- 1. Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
- 2. Statement of owners’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owners’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
- 3. Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.
- 4. Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
To mention: The financial and operating information reported both on income statement and statement of owners’ equity