Essential Components of Financial Statement
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Transcript of Essential Components of Financial Statement
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Essential Components of Financial Statements
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Financial Statements are the single most important source of information needed to make sound business decisions.
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REALLY!!?
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Components of a financial statement are the building blocks which are used for constructing financial statements.
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Financial statements make it easier to understand the earnings and expenditure of a business establishment.
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The most important
Components of a financial statement are listed here…
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1.Balance Sheet
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Balance Sheet helps in keeping track of an individual’s or business entity’s finances.
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The critical components of Balance Sheet are…
Assets Liabilities Equity or Owner’s Equity
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» Assets
They can be fixed or current assets. Fixed assets are the ones which remain constant for a very long period of time such as buildings and land whereas current assets are ones which can be readily converted to cash such a securities, inventory and other short term investments.
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» Liabilities
These can be debts or legal obligation of a company which can occur during the business operations of a company. They are a hindrance to the growth of the company and can put it at a disadvantage.
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» Equity or Owner’s Equity
It is the net value of an asset after deducting liability. Equity can contain contributions from shareholders, reserves and retained earnings.
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2.Profit and Loss Statement
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Profit and Loss statement gives a complete summary of revenue, expenses and costs incurred by a company for a given period of time.
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The different aspects of profit and loss statement are:
Revenue Expenses Gains Losses
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Revenue
The money that comes into a company because of its business activities during a particular period of time.
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Expenses
The operational costs incurred by a company in order to earn revenue.
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Gains
It’s the increase in the equity of a company through various transactions except from owner’s investments or revenues.
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Losses
It’s the decrease in equity of a company through various transactions except from distributions to owners or expenses.
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Did You Know?
Another terminology for Profit and Loss is Income Statement
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3.Cash Flow Statement
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It shows the inflow and outflow of cash in a firm over a particular accounting period.
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The important components of Cash Flow Statements are..
Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
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» Cash Flow From Operating Activities
Operating activities are the production of goods, sales and finally delivery of the finished goods.
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» Cash Flow From Investing Activities
These include cash flows from assets purchase, gains and losses from investments and other transactions of the company.
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» Cash Flow from Financing Activities
These include the decisions taken by the company which help it in raising capital and most importantly repaying investors.
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Each and every aspect of the financial statement is important and provides valuable insights into the working of the company.
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Invensis provides a wide range of Finance and Accounting Services.
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Invensis is an ISO 9001 and 27001 certified company and has served 200+ clients around the world.
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Invensis’ Finance and Accounting Services can provide precious insights about your company which can help improve its fiscal aspect.
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