Types Of Financial Statements Explanation [2024]

Types Of Financial Statements

Financial statements are significant for any organization. Because these statements give a fair and truthful account of the organization’s financial performance during the most recent financial period and of the organization’s actual financial condition. Any for-profit or not-for-profit organization involved in financial transactions prepares these statements. These statements are an essential part of any organization’s annual report. Management, employees, investors, shareholders, key suppliers, key customers, exchanges, government agencies, and other interested parties of a business entity use these financial statements.

Types Of Financial Statements

There are three types of annual accounts. But there are also two other important parts of the yearly report that count as annual accounts. Thus, there are generally five types of degrees:

Balance Sheet

Proof of income

cash flow statement

Equity change invoice

Notes To The Annual Accounts

Each type is explained below:

1. Balance Sheet Is One Of The Financial Statements

Records the balances of assets, liabilities and Equity as of the closing date. The balance is another name for the balance sheet because you can get the company’s net worth by subtracting total liabilities from total assets.

The accounting calculation for the balance sheet is: Assets = Liabilities + Equity

The three main elements of the balance are:

Financial Assets

Responsibilities Etc

Own Capital

These elements are briefly described below:

Financial Assets:

Assets are the company’s sources at its disposal economically and legally. For example, land, buildings, cash, and automobiles are any enterprise assets. Again, there can be two styles of property: current or cutting-edge belongings and non-contemporary or fixed property.

Current belongings include coins, work in progress, uncooked substances, increase payments, and completed items that can be fed on and processed within 365 days of the stability sheet date.

Fixed or fixed belongings can be classified into tangible and intangible belongings. Property, plant and system include assets, plant and system, land, device, buildings and long-term investments which can be expected to be consumed and transformed more than 365 days after the stability sheet date. Intangible assets consist of goodwill, investments, patents and logos.

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Passives

The agency’s duties to another business enterprise or person are known as liabilities. For instance, bank loans, purchases on credit score, overdrafts, taxes owed and interest owed. Again, liabilities are categorised into quick-term or short-term liabilities and lengthy-time period or lengthy-time period liabilities.

The dedication expires in a yr. For example, purchasing an item on credit inside 5 months can be recorded as a modern legal responsibility. The obligation expires within a duration longer than 12 months or 12 months. For instance, a finance rent with a term of fewer than three years may be accounted for as an extended-term or long-time period liability.

Own Capital

Equity is different from assets and liabilities. Items included in Equity are share capital, retained earnings, retained earnings, preferred stock and common stock. Changes in assets and liabilities over some time affect the net asset value. Net worth can be calculated by subtracting liabilities from assets.

2. Proof Of Income Is One Of The Financial Statements

The income statement is a company’s financial statement that presents three critical pieces of financial information of the company for a specific period. This information includes expenses, income and profit or loss for that period. The income statement is another name for the income statement because users can use it to measure the company’s financial performance year after year and compare it with its competitors.

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Three main elements of the income statement is briefly describe below:

a)Income:

Sales of goods and offerings made by using a organisation during a given accounting period are revenue. A agency can understand its profits the usage of the cash method or the accrual technique. But you can learn the number of net sales made by the company during the period include in this section.

In the income statement, income is usually record in a summarized form. The various types of revenue generate  by the company during the period can be found in the appendix. So you can also understand the importance, increase and decrease of the different income lines. Please refer to the Profit and Loss Account Notes for further details.

B) Expenses:

Operating expenses incurred by the business for a given accounting period. Labour costs, depreciation, utilities, transportation costs, training costs, interest expenses, and tax expenses are different business expenses. Fees also include the cost of providing services and goods sold during the specified period. However, the cost of goods sold and general and administrative expenses are account for differently.

c)Profit or Loss:

If you subtract the expenses from the income generated, you make a profit or a loss. If the revenue generated is higher than the expenses, there is a profit. However, if costs exceed income, there is a loss. The gain or loss is transfer to the Equity statement and the balance sheet changes.

3.Cash Flow Statement Is One Of The Financial Statements

The financial statement represents the company’s payment movements during a specific period. So this statement consists of three sections: Cash flows from

• 1. Operating activities,
• 2. Investing, and
• 3. Financing activities.

Several factors make net income and cash on hand completely different. And these are non-monetary adjustments to net income, investments, changes in working capital, dividend payments, capital inflows and outflows.

4. Statement Of Changes In Equity Is One Of The Financial Statements

These financial statements show the movement of shareholders’ Equity, the contribution of shareholders and the ending balance of shareholders’ Equity in each accounting period. So this statement covers total share capital, share capital classification, retained earnings, other related government reserves and dividend payments. So if these two financial statements are correctly prepare, this statement will also be correct.

5. Notes To The Annual Accounts

International Financial Reporting Standards (IFRS) require companies to disclose all necessary information related to financial statements for better understanding by users. Because the notes to the financial statements are important financial statements that most people overlook. For example, you can find the fixed-assets inventory on the balance sheet, but the details are available in the notes to fixed assets.

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