Question

Compare and contrast the Balance Sheet, Income Statement, and Statement of Cash Flows. Make sure to spend some time defining each financial statement and describing the formula that the statement follows.

Answer 1

The balance sheet reflects the financial position of the firm.It shows th various assets of the firm , the firms liabilities and equities.the Assets shown in balance sheet may include fixed and current assets.The liabilities include current liabilities and long term debt.The formula for balance sheet is Assets =Liabilities +Equity.Balance sheet can be used alongside other financial statements to perform the financial analysis of the firm.The income statement of a firm indicates the firm's ability to generate profit .The income statement indicates the revenue and expenses incurred by the firm during a given time period and also the net profit.An income statement depicts the efficiency with which management operates the firm and how the firm is performing when compared to it's competitors.The formula for income statement is Revenue Less COST of Goods Sold gives Gross Profit less Operating Expenses we get Operating Profit Less Interest we get Earnings before Tax and less Tax we get Net profit.The cash flow statement of a firm gives the summary of cash disbursements and receipts of a firm for a given time period.The cash flow statement comprises of cash inflows and outflows from operating activities financing activities and investing activities.It indicates how efficient firm is in the management and generation of cash.The Cash Flow Statement Formula =Net Cash flow from operating Activity +net cash flow from investing Activity +Net Cash flow From Financing Activity.