Purpose of the main financial statements
Throughout the existence of a business many requests will be made for its financial statements. Financial statements are formal presentations of the flow of money into, through and out of a business. Financial statements are comprised of three main areas: balance sheets, income (profit and loss) statements and cash flow statements. Each area of a financial statement has its own purpose and provides specific information about a company’s financial stability (unknown author, wikipeida). Income Statements
Income statements (profit and loss statements) show the revenue earned during a reporting period. Included in this report are expenses and cost of creating the revenue. Once the expenses and costs are removed from the total revenue, the bottom line of the report reveals whether or not the company lost money or made money. Sometimes this report referred to as the profit and loss statement. In addition, another feature is to indicate EPS (Earning Per Share). It reveals what a shareholder would receive if you were being paid dividends per each share owned. Cash Flow Statements
Cash on hand is important because it supports the daily activities of a business. There must be enough cash on hand to pay expenses and buy assets as needed. Cash flow statements track the inflow and outflow of cash (unknown author, BTEC HND textbook). Cash flow statements track the inflow and outflow of cash. They reveal whether or not cash was generated by the business. In another words, it provides information to track where exactly the money goes. After all, cash flow statements reveal net decreases or increases of cash for the reporting period. Financial Statements
Once a set of financial statements are prepared they can be used for loan applications, fund-raising or to place a value on a business. However, they are typically used for making business decisions that will affect operations. The information in the financial statements is also used...
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