Financial Statements — Overview
- Topic
- Financial Statements — Overview
- Area
- Financial Statements
- Explanation
Financial Statements
The four main financial statements provide a comprehensive view of a company's financial health and performance.
1. Income Statement (Profit & Loss Account)
- Shows revenues and expenses over a period of time.
- $Net \text{ Profit} = Revenue - Expenses$
- $Gross \text{ Profit} = Sales - Cost \text{ of } Goods \text{ Sold } (COGS)$
- $Net \text{ Profit} = Gross \text{ Profit} - Operating \text{ Expenses} - Taxes$
2. Balance Sheet
- Shows assets, liabilities, and equity at a specific point in time.
- Accounting Equation: $Assets = Liabilities + Owner's \text{ Equity}$
- Assets: Current (e.g., Cash, Debtors, Inventory) + Non-Current (e.g., Fixed Assets)
- Liabilities: Current (e.g., Payables, Short-term loans) + Non-Current (e.g., Long-term debt)
3. Cash Flow Statement
- Shows the movement of cash, categorised into operating, investing, and financing activities.
- It reconciles the accrual-based profit (from the Income Statement) with the actual cash position.
4. Statement of Changes in Equity
- Details the changes in owner's or shareholders' equity over an accounting period.