Describe The Differences Between The Formats Of Financial Statements For Different Types Of Businesswith Related Examples?


1 Answers

Connor Sephton Profile
Connor Sephton answered
There are three main different formats of financial statements that can be found across different businesses. These are the income statement, balance sheet and cash flow statement. Each of these statements need to be understood by a business in order for them to manage their money efficiently and successfully.

Income statements are financial statements that indicate how the money received from the sale of products and services before expenses are taken out, the revenue, is transformed into the net income. This net income is the result after all of the expenses and revenues have been taken into consideration and accounted for. An income statement will display the revenues for a specific period of time as well as the cost and expenses that were charged against these revenues. These will mainly include write offs and taxes. Income statements are used to show investors and managers whether the company has made a profit or loss during a certain period of time.

Balance sheets are used primarily in financial accounting to give a summary of the financial balances of a company, business partnership or sole proprietorship. All of the liabilities, ownership equality and assets are listed as of a specific date. This date is quite commonly the end of a financial year. A balance sheet is used to provide a snapshot of a company's financial condition. It is the only financial statement that focuses on a single point in time rather than a period. The main parts of a balance sheet are listed in the order of assets, liabilities and then ownership equity.

Cash flow statements are used to show how any changes that have occurred in a balance sheet account and income have an effect on cash equivalents. This statement will break down the analysis into investing, financing and operating activities. The basic definition of a cash flow statement is of a statement that is concerned with the flow of cash that comes in and out of a business. It is useful for determining the short term viability of the company that, in turn, can help determine whether it can pay bills.

Answer Question