5 Financial Statements

INTRODUCTION TO ACCOUNTING:
DEFINITION: USES:
• Accounting is the process of The purpose of accounting is
recording financial to accumulate and report on
transactions pertaining to a financial information about
business. The accounting the performance, financial
process includes position, and cash flows of a
summarizing, analyzing and business. This information is
reporting these transactions then used to reach decisions
to oversight agencies, about how to manage the
regulators and tax collection business, or invest in it, or
entities. lend money to it.
FINANCIAL STATEMENTS:
DEFINITION AND USES: TYPES OF FINANCIAL
• Financial statements are STATEMENTS:
written records that convey There are 5 types of financial
the business activities and the statements:
financial performance of a
company. Financial statements
• Income statement
are often audited by • Balance sheet
government agencies, • Cash flow statement
accountants, firms, etc. to
ensure accuracy and for tax, • Statement of owner’s equity
financing, or investing • Footnotes to financial
purposes. statements
WHAT IS INCOME STATEMENT AND ITS PURPOSE:
The main ”purpose of an
income statement” is to convey details of
profitability and business activities of the company to
the stakeholders, it also provides detailed insights
into the company's internals for comparison across
different businesses and sectors.
USES OF INCOME STATEMENT: They
will use the financial reporting contained therein to
determine credit limits. The sales figure represents
the amount of revenue generated by the business.
Balance sheet
Definition : Balance Sheet is the financial
statement of a company which includes assets,
liabilities, equity capital, total debt, etc. at a point in
time. Balance sheet includes assets on one side,
and liabilities on the other. ... They can be divided
into current as well as non-current assets or long
term assets.
Limitation: Assets recorded at historical value.

Only recognizes assets that can be
expressed as
monetary terms.
Owners equity is usually less than the

company’s market value.
Cash Flow Statement
Definition: A cash flow statement is a
financial statement that provides aggregate data regarding
all cash inflows a company receives from its ongoing
operations and external investment sources. It also
includes all cash outflows that pay for business activities
and investments during a given period.
Specification: In financial accounting, a cash flow

statement, also known as statement of cash flows or funds
flow statement, is a financial statement that shows how
changes in balance sheet accounts and income affect cash
and cash equivalents, and breaks the analysis down to
operating, investing, and financing activities. Essentially,
the cash flow statement is concerned with the flow of cash
in and out of the business.
STATEMENT OF OWNERS EQUITY:
Definition: USAGE: FORMAT:
• The statement of • The statement of
owner’s equity shows owner’s equity portrays
how the net worth/value changes in the capital
(or equity) of business balance of a business
changed for the period over a reporting period.
of time. This statement The concept is usually
includes Net Income (or applied to a sole
Net Loss), which was proprietorship, where
brought forward from income earned during
the income statement. the period is added to
The ending balance is the beginning capital
carried forward to the balance and owner
balance sheet. draws are subtracted.
Notes Of financial statements
• Footnotes to the financial statements
refer to additional information that helps
explain how a company arrived at its
financial statement figures. They also
help to explain any irregularities or
perceived inconsistencies in year to year
account methodologies. It functions as a
supplement, providing clarity to those
who require it without having the
information placed in the body of the
statement. Nevertheless, the information
included in the footnotes is often
important, and it may reveal underlying
issues with a company's financial health.
CONCLUSION:
• All of the above financial statements
are used for different purposes.
• They are basic components of
running a business.
• Each of them has their own major
value in a business.
• They are compiled at every end of
the year and given out to public/
shareholders.
• The company’s future depends on
their solidarity and authentication.

5 Financial Statements

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INTRODUCTION TO ACCOUNTING:

Limitation: Assets recorded at historical value.

Owners equity is usually less than the

Specification: In financial accounting, a cash flow

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