The Common Four Financial Statements
Most businesses use the common four financial statements when bookkeeping. These are the balance sheet, income statement, cash flow statement, and statement of shareholders' equity. Financial statements are a key factor in determining the financial health of a company. By understanding how to read and use these statements, you can make informed decisions about the best way to grow your business.
The balance sheet presents a snapshot of your business. Simply put, it shows what your company owns (assets), such as buildings, furniture, machinery, inventory, and cash in the bank. It also shows what your company owes (liabilities), including outstanding loans, accrued wages owed, bills payable to suppliers and other vendors. The difference between these two figures is the amount of equity the owner or owners have in the company. This is often labeled as stockholders' equity.
Profit & Loss (Income Statement)
The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The P&L statement can also be referred to as the income statement. These records provide information about a company's ability or inability to generate profit by increasing revenue, reducing costs, or both.
Statement of Cash Flows
A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses.
Statement of Shareholders Equity
Shareholders equity is an important financial statement that shows the ownership interests of shareholders in a company. The shareholders equity formula is used to calculate this number. This figure can be found on the balance sheet of a company's financial statements. Shareholders equity is an important number because it represents the portion of a company's assets that are owned by shareholders. This number can be used to assess the financial health of a company and its shareholders. shareholders equity can also be used to make comparisons between companies. The shareholders equity formula is:
shareholders equity = assets - liabilities