Question

1. Identify the four financial statements and describe the purpose of each.

Answer 1

There are four main financial statement they are :

(1) Income statement

(2) Balance sheet

(3) Stockholders'equity

(4) Cash flow Statement

Income statement:

The main purpose of income statement is to show a company's profitability and provide detail information to its users of total revenues and expenses that occurred during the specific period of time .

The difference between revenues and expenses referred to as the bottom line as net income or net loss.

Balance sheet:

Balance sheet provides a snapshot of a company's assets and liabilities. It is helpful for stakeholders to evaluate the overall health of the company as well as its liquidity during the specific period of time.

It provides information about the financial position of company to its stakeholders during the specific period of time.

Stockholders' equity:

The main purpose of stockholders' equity is to provides information about the total amount of capital given to the company by its shareholders in exchange for stocks and also includes retained earning.

It also shows changes made in value of stockholders' equity or ownership interest from the beginning of a given accounting period to the end of that period.

Cash flow statement:

The main purpose of cash flow statement is to provides information about the cash inflows and cash outflows and net changes in cash due to Operating, investing and financing activities of the company during the specific period of time.

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