Question

Please explain all the financial statements in financial management.

Please explain them in detail and explain their importance.

Answer 1

Answer: Financial Statements- These are the part of financial reporting in any company. Financial statements show the financial and liquidity position of the company.

Type of financial statements- Are as following:

Income statement- It is also called profit and loss statement, In this statement, income and expenditures of a particular accounting period are recorded and profit or loss for that period is known.

Importance- This statement is the first major financial statement and very important too. It provides figures of revenue and other income and also the expenditures. It makes company able to know its sources of income and amount of expenses. It shows the profitability of the company, if there is less profit or loss in the income statement, it means expenses are more than income so company needs to control its expenditures so that profit can be increased.

Balance sheet- This is another very important statement that shows total assets, total liabilities and shareholder's equity of the company. Balance sheet makes company able to know its financial health and liquidity position. It shows current and non current assets and liabilities separately.

Importance- It is very important statement, it shows that company is having enough assets to meet its short term and long term obligations. It shows strength of the company, it shows whether the company is highly leveraged or not. It shows the shareholder's equity at the end of the period and also the retained earnings. Balance sheet provide the liquidity position of the company.

Cash flow statement- This statement records the inflow and outflow of cash in a given accounting period. At the end of the period, it calculates, net increase or decrease in cash in the company.

Importance- This statement shows the cash position in the company. Cash is vital part of any business. It shows the net amount of cash available at the end of accounting period.