Question

What is a balance sheet?

2. What is an income statement?

3. What else, besides and income statement and balance sheet might a lender request from a business wishing to borrow money?

Answer 1

1.A balance sheet tells you want the business owns and owes. It includes assets, liabilities, equity capital and debt. A balance sheet is used to make important financing decisions.

2.The income statement tells you how much money the business makes. It reports a company’s financial performance over a period of time. The income statement shows whether a company is making a profit or a loss.

3.Apart from a balance sheet and income statement, a lender might request for a cash flow statement from a business wishing to borrow money.

A cash flow statement is prepared with the help of the income statement and the balance sheet. It is prepared it by adding net income from income statement, adding back non cash expenses and adding back non cash items in the balance sheet.

It consists of three categories.                                                                                            

1.Cash flow from operating activities: This is the cash flow from the normal business activity of buying and selling goods and services.

2.Cash flow from investing activities: This is the cash flow from purchase of assets.

3. Cash flow from financing activities: This is the cash flow from selling stocks and bonds and paying dividends.

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