Financial statements are a representation of the financial health of a company. They are comprised of three major categories: the income statement, balance sheet, and cash flow statement. The income statement records all transactions for a given time period, which is usually one year, and helps to answer questions about how much money was made or lost during that time span.

The balance sheet tells us what kind of assets the company has at its disposal. And lastly, the cash flow statement tells us what happened to all that money–where it came from and where it went. understand the basics of accounting statements.

If you are a business owner or investor, you need to know how to read accounting statements. The three statements that every company creates are the balance sheet, the income statement, and the cash flow statement.

What is an accounting statement?

An accounting statement is a representation of the financial health of a company. There are three major categories of statements: the income statement, balance sheet, and cash flow statement. The income statement records all transactions for a given time period, which is usually one year, and it helps to answer questions about how much money was made or lost during that time span. The balance sheet tells us what kind of assets the company has at its disposal. And lastly, the cash flow statement tells us what happened to all that money–where it came from and where it went.

Three Types of Statements

: Income Statement, Balance Sheet, and Cash Flow Statement

The income statement records all transactions for a given time period, which is usually one year, and helps to answer questions about how much money was made or lost during that time span. The balance sheet tells us what kind of assets the company has at its disposal. And lastly, the cash flow statement tells us what happened to all that money–where it came from and where it went.

A Breakdown of the Income Statement

The income statement records all transactions for a given time period, which is usually one year, and helps to answer questions about how much money was made or lost during that time span.

Income statements are divided into four categories: operating expenses, depreciation and amortization, interest expense, and taxes.

A Breakdown of the Balance Sheet

The balance sheet is the statement that tells you what kind of assets the company has, or what is available to use. Assets are broken down into two sub-categories: current assets and long-term assets.

Current assets are those that can be turned into cash within one year. This could include cash, accounts receivable (money owed to your company), inventory (things you make to sell later), and prepaid expenses (expenses for which you have already paid).

Long-term assets last more than one year. These could include land, buildings, equipment, furniture, other tangible property (items like an office building), intangible property (intangible items like patents or copyrights), and investments in other businesses.

A Breakdown of the Cash Flow Statement

The cash flow statement starts with the company’s starting balance of cash, which is at the top of the statement. The next line shows inflows of cash, which includes all money coming into the company during the accounting period. This can be from customers, suppliers, or other sources.

The last line on the statement shows outflows of cash, which are all money that has left the company during that time period. This category is often called “negative cash flow” because it decreases the amount of money in a business. Outflows could include things like employee salaries, rent payments, and expenses associated with running a business.

To read a cash flow statement, start at the top and work your way down:

Direct Cash Inflows: This includes things like revenues and interest income.

Cash Outflows: This includes things as operating expenses and payments on liabilities

Changes in Operating Assets and Liabilities: This includes changes in inventory balances as well as the balance of accounts receivable and payable.

Net Effect of Operations on Cash: The net effect of operations on cash is the sum of all transactions affecting the cash balance including those that result in decreases or increases to assets or liabilities as well as those that produce no change to either side of the equation.

How to Prepare the accounting statements of any company

In order to prepare the accounting statements of any company, you need to know and understand the following:

The balance sheet tells us what kind of assets the company has at its disposal.

The income statement records all transactions for a given time period, which is usually one year, and helps to answer questions about how much money was made or lost during that time span.

The cash flow statement tells us what happened to all that money–where it came from and where it went.

Summary and Conclusion

We hope this blog has helped you to understand the basics of accounting statements. Although they may seem daunting at first, remember that these statements can provide important information about your company’s financial health. By understanding the three different statements, you will be able to make confident decisions for your business.

Takeaways:

1. Financial Statements are a representation of the financial health of a company.

2. The income statement records all transactions for a given time period, which is usually one year, and helps to answer questions about how much money was made or lost during that time span.

3. The balance sheet tells us what kind of assets the company has at its disposal.

4. The cash flow statement tells us what happened to all that money–where it came from and where it went.