Question

List the 4 financial statements and describe them. Make sure to include how they flow together.

Answer 1

There are mainly four type of financial statement in normal business accounting system as follows-

1. Income statement
2. Balance sheet
3. Statement of cash flow
4. Statement show change in equity

1. Income statement- in this part of financial statement we shows net sales, procurement, gross profit, all direct and indirect expenses , all indirect income of business and net profit earned during the year form business operation. Income statement show result of business activity which happened during the year.
2. Balance sheet- This part of financial statement show all Assets and liabilities of organization. This show finical position of business organization. Liability includes share capital, debt, and current liabilities. And assets include tangibles and intangibles fixed assets, current assets etc.
3. Statement of cash flow- This statement show how cash flow during a period of time in organization and how organization get closing cash and cash equivalent from opening balance of cash and cash equivalent. This statement shows cash flow from operating activities, financing activities, and financing activities.

1. Statement of change in equity- This statement show change in equity of organization during a period of time. In this statement we get closing equity through following steps-

1. Beginning equity balance
2. Additions and subtraction of equity during period
3. Ending balance

These all statement linked and works together. Like:-

•             Profit earns during the year shows income statement and same will also show in Balance sheet and cash flow from operating activity.

•             Cash balance shows in Balance sheet can also be verified with closing cash balance get from statement of cash flow.