Introduction to Financial Statements
Every transaction that a business gets involved with ultimately finds its way into the accounting records and financial statements of the business.
In business there are essential two main types of financial reports (or "accounts"):
- Financial accounting – which formally records, summarises and reports the transactions of the business
- Management accounting – which presents and analyses financial data to help management take decisions and monitor performance
Financial accounting and accompanying financial restatements focus on reports that a business is required to produce.
The three main elements of financial accounts are:
This measures the business' performance over a given period of time, usually one year. It compares the income of the business against the cost of goods or services and expenses incurred in earning that revenue.
This is a snapshot of the business' assets (what it owns or is owed) and its liabilities (what it owes) on a particular day - usually the last day of the financial year.
CASH FLOW STATEMENT
This shows how the business has generated and disposed of cash and liquid funds during the period under review.
If you were to look at the financial accounts of a public company you would also find other elements that provide detailed information for investors, analysts and other users of the accounts.They include:
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