5 Types of Financial Statements
The financial statements of a business are not one single document. Many different types of statements are needed to establish the condition of your company’s financials.
What is an accounting statement?
A definition of a financial statement is, in its simplest sense the document that is used to demonstrate the financial status of your business. The specific items that fall under the definition of a financial statement tend to be more specific and plays a significant role play. Each kind of financial statement is likely to be a knock-on effect to another kind of. Therefore, it is impossible to get a complete picture of a company by using just one kind of statement. It is necessary to combine the information from one statement and the information from another statement to gain a better knowledge of the financial health of your company.
The 5 kinds of financial statements you should to be aware of
There are numerous crucial financial statements that every business requires. It’s not only a matter of conformity or best practice, they’re essential tools for keeping track of your financials. These are the essential documents that you should be aware about:
1. Statement of income
Perhaps the most crucial. It is essential for a business to be observant on its profits and the money that comes into the business, and that’s exactly what an income statement is designed to do. The income statement can be referred to as the profit and loss statement that shows your company’s profits and expenditures for a specific time. The income statement will take revenues, losses, and expenses into consideration, which allows you to see if your company is turning profits or has not hit its target.
2. Statement of Cash Flow
The cash flow statement reveals the way money flows into and out of your company, so that you know the amount of working capital at a specific date. A cash flow report is vital to show you how fast you could access cash if you required it, since it doesn’t include things like raw materials , or purchases made but that haven’t yet been paid through credit.
3. Balance sheet
The balance sheet reveals three essential aspects that are important: your assets, your liabilities as well as your equity. The balance sheet will reveal the value at present of a business over the time it’s been in. The balance sheet will assist you in understanding whether you are able to fulfill the financial requirements.
4. Note to Financial Statements
This is a condition of IFRS (International Financial Reporting Standards) and provides more insight into the information you have in your financial statements documents. For instance your assets could be included on the balance sheet, however, your note on financial statements is where you’ll describe exactly what assets you have. This document is essential to ensure that you’re in compliance with guidelines and standards.
5. Statement of changes in equity
This document outlines the modifications that your company has made to its equity capital and retained profits and the accumulated reserves. For a sole trader it shows changes to owners equity. In the case of a partnership, it indicates the changes in each partner’s equity. If it is an organization, the statement of equity changes illustrates how equity shares have changed across all shareholders.
What is the sequence of the financial statements?
The normal order of financial statements is this:
- Statement of income
- Statement of cash flow
- Statement of changes to equity
- Balance sheet
- Note on financial statements
This is the sequence that each document is created within your company’s accounting cycle in order to give an entire picture of your business’s financials.