Topics: Generally Accepted Accounting Principles, Income statement, Balance sheet Pages: 8 (1488 words) Published: November 18, 2014

“Defining the three important financial statements has made analysts’ life simpler by ensuring consistency in reporting”. Analyzing a business’s performance and standing can be adequately done using financial statements.


Kunal Sharman

SHTM 2012

Institute for international management and technology
Oxford Brookes University

Ms.Garima Gupta

“Defining the three important financial statements has made analysts’ life simpler by ensuring consistency in reporting”.

A collection of facts and figures which are organized in a proper and systematic accounting procedures. Financial statements convey an understanding and content of financial data of an organization. According to john Hampton a financial statement is an organized collection of data according to logical and consistent accounting procedures. The aim is to convey an understanding of financial aspects of a firm. This essay will tell us about what are the three important financial statements and how these three important financial statements has made analyst life simpler by ensuring consistency in reporting.

Balance sheet, income statement and cash flow statement are the three important financial statements. Balance sheet:
A Balance Sheet is a financial statement that shows the financial position at a given date. Balance sheet includes a company's assets and liabilities. Assets are what we own and these are of two types; fixed asset and currents assets. Current assets include cash at bank, stocks, debtors and prepayments. Fixed assets include land and buildings, furniture and equipments. Long-term investments include share and deposits. Liabilities are what we owe and liabilities are of two type’s current liabilities, fixed liabilities, shareholder funds and long-term borrowings. Current liabilities include creditors, accruals and bank overdraft. Fixed liabilities are of two types’ shareholders funds which include share capital, reserves and retained profits. Long-term borrowings include loan from bank. The balance sheet always balances assets and liabilities that’s why it is called balance sheet. Balance sheet gives an idea that what the company owns, owes and the amount invested by the shareholder’s. Assets= liabilities + shareholders equity.

Income Statement:
The income statement includes all the income and revenue expenses that the business has incurred during a particular year. Revenue expense compared with revenue expenses to calculate profit or loss for the year. Income statement shows gross profit and net profit of a company in a particular year. Which is calculated by sales minus cost of good sales gives gross profit and after reducing cost of cost of expense from gross profit gives net profit. Income statement also known as the “profit and loss statement”. It is one of the three major financial statements. The income statement consist of two parts i.e. is operating and non-operating sections. The portion of the income statement that deals with operating items is interesting to investors and analysts alike because this section discloses information about revenues and expenses that are a direct result of the regular business operations. For example, if a business creates sports equipment, then the operating items section would talk about the revenues and expenses involved with the production of sports equipment. The non-operating items section discloses revenue and expense information about activities that are not tied directly to a company's regular operations. For example, if the sport equipment company sold a factory and some old plant equipment, then this information would be in the non-operating items section. Cash flow statement

Cash flow statement shows the main cash movements that are inflows and outflows that have occurred in a business over a period of time. It divides the activities that make/spend cash into operating, financing and investing. Cash flow statement gives a...
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