Financial Statements That Financial Accounting Generates

Financial accounting will produce some financial statements which are general-purpose and can be used externally (Also see The Role of Trial Balance in Accounting). Those statements include the balance sheet (Also see Accounting – Key Elements of a Balance Sheet), cash flow statement, income statement, as well as statement of stockholders’ equity.

Balance Sheet

Usually, on the last day of an accounting period, there will be three parts in the balance sheet, which are assets, liabilities, and stockholders’ equity.

In the balance sheet, the first part reports the assets of the company, and it consists of cash, inventory, equipment, buildings, accounts receivables, and prepaid insurance (Also see Accounting for Prepayments). The second section will be the liabilities of the company. The due date of the of these obligations is the same as the date of the balance sheet and their titles often consist of the word “payable”. Some examples include accounts payable, notes payable, interest payable, and so on. The last part of the balance sheet is the stockholder’s equity, and one may calculate its value by working out the difference between the sum of assets and liabilities.

Cash Flow Statement

It is a statement which explains the changes in the cash as well as cash equivalents of a company throughout the duration which is specified in its title (Also see Understanding Cash Collection Cycle). One may divide the change into three parts, which are the operating activities, investing activities, as well as the financing activities.  

The section for operating activities indicates how the cash and the cash equivalent of a company have changed as a result of the operation of the business. Besides, investing activities stand for the sum that the company has expensed or collected in transactions which involve long-term assets. Lastly, the part for financing activities reports things such as cash the company obtains through the issuance of stock, issuance of long-term debt, or money it spends on retiring long-term liabilities.

Income Statement

It is a financial statement that reports the profitability of the company (Also see How to Calculate Return on Capital Employed (ROCE)?) throughout a particular period. The duration can be a month, three months, one year, or any other time frame that the firm has selected.

The main parts of the income statement are gains, losses, revenues and expenses. Revenues consist of things such as service revenue, interest revenue, as well as sales. Expenses consist of the operating expenses, non-operating expenses and cost of goods sold. If a corporation trades its stock publicly, it should record the earnings per share (EPS) of its common stock on its income statement.

Statement of Stockholders’ Equity

This statement records the changes in stockholders’ equity for the period, which is the same as the cash flow statement and the income statement. The changes consist of things like the exercise of stock options, repurchase of common stock, dividends (Also see Do You Think Dividend is an Expense?), net income, as well as other comprehensive income.

Financial accounting is not something easy as it involves the preparation of many financial statements. Therefore, if you encounter any problem in accounting, do not hesitate to hire an accounting firm in Kota Kinabalu.