Financial Statement

Business report information in the form of financial statements issued on a periodic basis. GAAP requires the following four financial statements:

• Balance Sheet: statement of financial position at a given point in time

• Income Statement: revenues minus expenses for a given time period ending at a specified date.
• Statement of Owner´s Equity: also know as Statement of Retained Earnings or Equity Statement

• Statement of Cash Flows: Summarizes sources and uses of cash, indicates whether enougt cash is available to carry routine operations

Balance Sheet The balance sheeet is based on the following fundamental accounting model:

Assets = Labilities + Equity

Assets can be classed as either assets or fixed assets, Current assets are assets that quickly ans easily can be converted into cahs, cometimes at a discount to the purchase price. Current assets include cash, accounts receivable, marketable securities, notes receivable, inventory and prepaid assets such a prepaid insurance. Fixed assets include land, buildings, and equipment. Such assets are recorded at historical cost, which often is much lower than the market value.

Liabilities represent the portion of a firm´s assets that are owed to creditors. Liabilities can be classed as short-term liabilities (current)and long-term (not-current) liabilities. Current liabilities include accounts payable, notes payable, interest payable, and wages payable and taxes payable. Long-term liabilities include mortgages payable and bonds payable. The portion of a mortgages long-term bond that is due within the next 12 months is classed as a current liability, ans usually is referred to as the current portion of long-term debt. The creditors of a business are the primary claimants, getting paids before the owners should be business cease to exist.

Equity is referred to as owner´s equity in a sole propietorship or a partnership,asd stockholders´ equity or shareholders´equity in a corporation. The balance sheet reports the resourses of the entity

Income Statement:

Present the result of the entity´s operations during a period of time, the equation to decribe income is:

Net Income= Revenue – Expenses

Revenue are the inflows from the delivery or manufactureof a product or from a servic. Expenses are inflows incurred to produce revenues.

Operations incomecan be separated from oters forms of income, can described by:

Net Income:Revenue – Expenses + Gains – Losses

 Statement of Retained Earnings The Equity Statement explaing the changes in retained earnings this appear on the balance sheet are influenced by incomes and dividens. This Statement use information from the income statementand provide information to balance sheet.

 

 The next equation describe this:
 

 Ending Equity = Beginning Equity + Investments – Withdrawals + Income

 
The dividends paid are substitute by withdrawals; the equity is calculated of this way:
 
 

+ Premium on Common Stock (issue minus par value)

+ Preferred Stock (recorded at par value)

+ Premium on preferred Stock (issue minus par value)

+ Retained Earnings = Stockholder´s Equity Example:

 

 
 

Cash Flow Statement This Statement is useful to companies to evaluating the ability to pay it bills, The cash flow provides the following information:

• Sources of cash

• Uses of cash

• Change in cash balance

 

The cash flow statement represents an analysis of all the transactions of the business, reporting where the firm obtained its cash and what it did with it. The information used to construct the cash flow statement comes from the beginning and ending balance sheets for the period and for the income statement for the period.

Written by
Natasha Méndez





Sources consulted
Author: David Harper

Date: october 17, 2011

http://www.quickmba.com/accounting/fin/statements/