Question

Describe the four financial statements and how they are prepared.

Answer 1

Financial Statements describe a confirmed report of the commercial activities of an actuality. Those are addressed statements that quantify the economic strength, execution and liquidity of a corporation. Financial Statements indicate the monetary effects of sales transactions including performances at this entity.

Four Types of Financial Statements are given below :

1. Statement of Financial Position

it is also recognized as some Balance Sheet, manifests some monetary status of an entity at a negotiated time. It is composed of the ensuing 3 parts:

• Assets: company maintains or commands (e.g. money, inventory, plant and machinery, )
• Liabilities: a company owes to someone (e.g. mortgagers, bank mortgages, etc)
• Equity: What the company owes to its buyers. Here describes the price of wealth that resides in the company later its assets are utilized to pay off its excellent liabilities. Equity therefore signifies the variation among those assets also liabilities.

2. Income Statement

It is also identified as these Profit and Loss Statement, summarizes the company's economic administration in names of net profit or loss across a particularized time. Income Statement is constituted of the ensuing 2 parts:

• Income: some company has received above a term (e.g. trades wealth, bonus income, etc)
• Expense: The price acquired by the company over a time (e.g. wages and payments, devaluation, rental prices)

Net profit either loss is reached by decreasing payments of income.

3. Cash Flow Statement

it represents the change in cash and bank stability over a time. That action in cash flows is divided into the subsequent parts:

• Operating Activities: Describes the cash flow of primary actions of a company.
• Investing Activities: Outlines cash flow of the marketing and selling of assets separate than inventories (e.g. investment on factory plant)
• Financing Activities: Designs cash flow caused or spent on growing and returning share capital and debt mutually with the amounts of interest and dividends.

4. Statement of Changes in Equity

it is also kenned as the Statement of Retained Earnings, describes the change in buyers' assets over a time. The shift in buyers' assets is acquired of the subsequent parts:

• Net Profit or loss through the period as recorded in the income statement
• Share capital appeared or returned through the period
• Split payments
• Gains or losses acknowledged right in equity (e.g. revaluation surplusages)
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• prepared by IFRS OR GAAP