Question

What is the purpose and value of each of the 3 financial statements? What story does each tell and how does each help a manager manage? Be sure to consider the balance sheet, income statement and the statement of cash flow.

Answer 1

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Financial Statment

1.

Income statement (or profit and loss account):

the income statement is one of the financial statements which shows the financial performance of the business during an accounting period.

Purpose: income statement is prepared to ascertain the net profit earned or net loss incurred by the business entity during an accounting period.

2. Balance sheet:

A balance sheet is a financial statement which shows the financial position of an enterprise at a given date which exhibits its assets, external liabilities, capital and reserves.

Purpose:

1. To ascertain the nature and value of assets of a business.

2. To ascertain the nature and amount of liabilities of a business.

3. To find out the financial solvency of an enterprise. An enterprise is considered to be a solvent if its assets exceeds its external liabilities.

3. Cash flow statement:

Cash flow statement is a financial statement which provides the data regarding all cash inflows and outflows of a company from its ongoing operations, investment activities and financing activities.

Purpose:

1. It shows how well the company is managing its cash position.