Question

In: Accounting

Compare and contrast the roles of the four external financial reports (statement of financial performance, statement...

Compare and contrast the roles of the four external financial reports (statement of financial performance, statement of financial position, statement of changes in equity and statement of cash flows)

Solutions

Expert Solution

Statement of Financial performance also known as Profit & Loss account shows the performance of an entity throughout the Year.
Basically it is a summary of the Revenue earned and expenses made by the entity during a particular period. This statement is made
for a period of time and not for a particular date
Statement of Financial Position also known as Balance Sheet shows the position of the Assets, Liabilities and Equity on a Partiulcar date.
Unlike Statement of Financial performance, this statement is made on a particular date. It contains only those accounts which are in the nature
of Assets, Liabilities and equity and it does not contain Revenue and expense as those are covered by Statement of Financial Performance.
Statement of changes in equity compares and analyse the balance of equity on a particular date from it's comparative year(also known as previous year)
It shows the change in net worth of a company. It only contains items those are in the nature of equity and those are going to affect the equity. The input for
this statement is taken from the Balance Sheet.
Statement of cash flow shows the position of cashflow in an entity. As the name suggests it only contains those items which are in the nature of cash.
It ignores all the non-cash items. The input for this statement can be taken from all the other parts of financial statement mentioned above. Cash flow
statement is divided into 3 parts and it shows the cash flow flowing into the entity or out of the entity. Those 3 parts are Cash Flow from operating activities
Cash Flow from Investing activities and Cash Flow from Financing activities

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