Question

Question 12 marks

Name 4 (four) key financial statements that are used for reporting to shareholders and give a brief explanation of each in your own words of what they measure.

Answer 1

The Four key Financial statements are:

1. Income statements

2. Balance Sheets

3. Cash Flow statements

4. Statements of shareholders’ Equity

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Income statement also known as profit and loss statement, measures the business’s profits and losses over a certain period of time. IS shows the income and relevant business expenses.

It measures the business profitability during a certain period and financial strengths that assists in making financial decisions.

Balance Sheets : The second most important FS is the balance sheet, its tracks the financial progress and is broken down into three parts.

• Assets tangible and intangible items of value.

• Liabilitiesare debts you owe to other individuals, businesses, organisations and government agencies.

• Equity- value owed by the owner, invested capital + reserves/profits accumulated over time.

Cash Flow Statements shows the money that goes in and out of your business. Cash flow statements record actual cash

3 parts of Cash Flow Statements

• CF from Operations

• CF from Financing

• CF from Investments

Statement of Shareholders Equity/ retained earnings presents the change in equity during the reporting period. It includes sale or repurchase shares, dividends payments, and changes caused by reported profit and loss or retained earnings.

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