Question

Explain the four financial statements and why we need each of them. (Balance Sheet, Income Statement, Statement of Shareholder’s Equity, Statement of Cash Flows) What unique information does each provide to financial statement users.

Answer 1

Four basic financial statements are as follows -

1.Balance sheet

The balance sheet shows a company’s assets (what you own), liabilities (what you owe), and equity (the difference between your assets and liabilities).

it shows the values of the net worth of the entity

2.Income statement

Also commonly known as a profit and loss (P&L) statement, your income statement shows revenues, expenses, and profit/loss over a given period of time.

This type of statement tracks all of the money coming in and all the money going out

3. Statement of cash flows

The statement of cash flows is a summary of the cash moving in and out of your business.

It enables the company to see if they are spending more than they are earning or vice versa.

4.Statement of shareholders eyuity

The statement of shareholders equity tracks the changes in equity over a given period. Your retained earnings are equal to the amount of net income left over once you’ve paid out dividends to stockholders.

Information that shows is these statements include Classification of share capital, total share capital, retain earning, dividend payment, and other related state reserves.