Types of Financial Statements

There are four primary types of financial statements used in accounting and financial reporting. These statements provide a comprehensive overview of a company’s financial performance and position over a specific period:

1. Balance Sheet (Statement of Financial Position)
Purpose: Shows the company’s financial position at a specific point in time.

Key Components:

Assets: What the company owns (e.g., cash, inventory, equipment)

Liabilities: What the company owes (e.g., loans, accounts payable)

Equity: Owner’s interest in the company (e.g., capital, retained earnings)

📌 Formula:
Assets = Liabilities + Equity

2. Income Statement (Profit and Loss Statement)
Purpose: Shows the company’s financial performance over a period (monthly, quarterly, annually).

Key Components:

Revenue (or Sales)

Expenses (e.g., cost of goods sold, salaries, rent)

Net Profit or Loss (Revenue – Expenses)

📌 Indicates how much profit or loss the business made during the period.

3. Cash Flow Statement
Purpose: Tracks the inflow and outflow of cash over a period.

Sections:

Operating Activities (e.g., cash from customers, payments to suppliers)

Investing Activities (e.g., purchase/sale of assets)

Financing Activities (e.g., loans, equity investment, dividend payments)

📌 Helps assess the company’s liquidity and cash management.

4. Statement of Changes in Equity (or Retained Earnings)
Purpose: Shows changes in owner’s equity during the reporting period.

Key Components:

Opening equity

Net income/loss

Owner contributions/withdrawals

Dividends paid

📌 Explains the movement in equity from one period to the next.

Optional / Supporting Statement:
5. Notes to Financial Statements
Purpose: Provide additional context and details to explain items in the main financial statements.

Includes:

Accounting policies

Breakdown of key items

Legal contingencies

Risk disclosures