4 Types you should know about the financial statement.
A business owner always wants to know how well his /her business runs. They are all watchful and inborn business sense of how their business is doing? In fact, business owners are seeking results of business how close hitting the targeted budget figure in every month. Surely, cash on hand and bank is playing a great role but it is more than we think.
What is the based or rely on the measuring business arena to know the position of a business? This questions answer is the financial statements only you can see reflects which are four types of financial statements that are the essential for small or any size of the business operation.
As a business person, you can first step to learn financial reporting in accounting. How to financial report analysis and presentation of it all parts as easy as possible whereas a person easily traces your business financial position. Now we can discuss four types of element which is involved in good financial reporting;
Statement Of Financial Position:
The double entry accounting system is the only accepted process which is certified by Generally Accepted Accounting Principal (GAAP). In this system, every transaction has two effects of the accounting book and each entry has an opposite and equal entry. In the books, two sides are equal and balanced. The balance sheet reflects the position of the business whether it is good or not. It has prepared in the certain period at the end of the month and it might be yearly quarterly or half yearly. There is a proof of the way Statement of financial position when the formula is equal Assets= Liabilities+ Owners Equity. The statement of financial position is known as a balance sheet. The balance sheet is consists of assets, liabilities and owners equity. These elements data is to be presented as a balance sheet. Now the three elements are following to discuss below;
An asset is the company owner or what it has got. There have two types of assets long-term assets and short-term assets. Long-term assets belong furniture, machinery, land, premises, goodwill, and over one year which investment is long-lasting. Short-term investment is cash in hand or bank, interest receives, inventory, Accounts receivable and which is less than one year is called short-term assets.
Liabilities are what the company owes and payment to others. There have two types of liabilities one is long-term and other is short-term liabilities. Long-term liabilities are debenture, loan in terms over one year and so on. On the other hand, short-term liabilities are accounts payable, interest on debenture, salary accrued and so on.
Equity is the owners invested in the business or owes to the owners in the business such as capital. Assets of the business pay off the outstanding liabilities existing balance is called equity. In short, assets minus liabilities equal to equity.
Income statement reflects all income and expenses of your business. It is also known as profit and loss accounts (P/L). It has prepared in particular time period for yearly, quarterly, half yearly and monthly at the end of the period. Revenue is listed in the year or month transactions have made and expenses are how may transaction listed in a year or month of the business that is enlisted. At the end of the income statement when income is greater than expenses is called net income and when expenses are greater than income is called net loss in the particular business.
Cash flow Statement:
Cash flow statement is combined with the income statement and balance sheet. It has reflected all kind of cash inflows and outflows of transactions in this statement. You may think you cannot maintain cash flow statement you just maintain your cash register books but in this book does not record depreciation, accounts payable and receivable. If you want to proper cash in and outflow in your business you may consider operating activities, financial activities, and Investing activities. These three activities must be recorded to maintain proper cash flow statement and discuss following below;
Primary expense or revenue in an accounting year reflects operating activities.
Business cash is generated in a year and purchase share capital, debenture on interest payment in a fiscal year.
When the business purchase or sale of assets or invested long-term investment is called investing activities.
Retained Earnings Statement:
The retained earnings statement is also known as a statement of change in equity. It is representing business owner’s capital position in an accounting period. There has some component which is indicator of retained earnings statement is discussed below;
In income statement net profit or loss represents and effects in equity.
Dividend payment and gain or loss is a realization in equity.
In balance sheet share capital issued or repaid in the accounting period which is effects in equity statement.