Financial Statements

There are four commonly used types of financial statements:

  1. Statement of Financial Position or Balance Sheet
  2. Provides the financial position of the entity at a given date and is comprised of three elements:

    • Assets: cash, inventory, machinery etc
    • Liabilities: money owed to creditors i.e. bank loans, etc
    • Equity: What the business owes to its owners.

    Equity represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities.

  3. Income Statement Income Statement, or Profit and Loss Statement
  4. Records the company’s financial performance in terms of net profit or loss over a specified period. The Income Statement is composed of the following two elements:

    • Income: sales revenue, dividend income, etc. over a specified period.
    • Expense: costs incurred by the business over a spcified period (salaries, depreciation etc)

    Net profit or loss is arrived by deducting expenses from income.

  5. Cash Flow Statement
  6. Cash Flow Statement, shows the movement in cash and bank balances over a specified period. The movement in cash flows is classified into the following segments:

    • Operating Activities: cash flow from primary business activities.
    • Investing Activities: cash flow from the purchase and sale of assets other than inventory
    • Financing Activities: cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends.
  7. Statement of Changes in Equity or Statement of Retained Earnings \
  8. Shows the movement in owners’ equity over a specified period. The movement in owners’ equity is obtained from the following components:

    • Net Profit or loss during the period (as reported in the income statement)
    • Share capital issued and/or repaid during the period
    • Dividend payments
    • Gains or losses recognized directly in equity (e.g. revaluation surpluses)
    • Effects of a change in accounting policy or correction(s) of accounting error

National Tax Service has twenty five years experience preparing all manner of financial statements. Why not contact us today?