There are four major types of financial statements that you should be aware of. It should be a well-known fact that financial statements are formal in nature and need to be stored safely. Keeping your financial statements safe is important because for starters you can always stay ahead of the paper trail and secondly if any regulatory body requires you to produce the statements, it will be less of a hassle if you have a copy of them instead of having to go to your bank or financial institution to get a copy of the statement. In this article, we have briefly explained the four types of financial statements.
1. Balance sheets are a form of financial statements; they are also referred to as the statement of financial position. A balance sheet has three important facets. Firstly, your balance sheet will contain details of everything that is owned by the company (assets). Secondly, your balance sheet will contain details of all debt that your company has incurred in specific detail (liabilities). And finally, your balance sheet will show the split in ownership along with the difference in assets and liabilities (equity).
2. The profit and loss statement is quite straightforward to understand. The financial statement that details profit and loss over a set time-period is referred to as an income statement. Income statements contain two facets; firstly, the total revenue that an organization has earned for a set period of time (income) and secondly, the total amount spent by the organization over that same time-period (expense). Your income statement would thus display both elements along with the net profit or loss that is calculated by the difference between income and expenses.
3. Cash flow statements display the cash flow and bank balance a particular organization has over a set period of time. There are three types of movement. Firstly, there is the operating movement that deals with the flow of cash due to an organization’s primary duties. The second form of movement is called investing activity that deals with the flow of cash due to acquiring and selling of assets. The final form of flow that is shown on the statement is called financing; financing movement is due to an organization repaying share capital along with debt and this movement also takes into account the flow of interests and dividends.
4. The final form of financial statement is called changes in equity, and it deals with the flow in equity of the owner over a set period of time. This statement is especially necessary when the ownership is split among a number of people.