6.2 Key Financial Statements
Financial statements are formal records of a company's financial activities. They provide a summary of a company’s financial performance and position.
The key financial statements include:
Balance Sheet
The balance sheet provides a snapshot of a company's financial position at a specific point in time. It lists the company’s assets, liabilities, and shareholders' equity.
Assets: Resources owned by the company (e.g., cash, inventory, property).
Liabilities: Obligations owed to others (e.g., loans, accounts payable).
Shareholders' Equity: The residual interest in the assets of the company after deducting liabilities.
Income Statement
The income statement, also known as the profit and loss statement, shows the company's financial performance over a specific period. It details revenues, expenses, and profits or losses.
Revenue: Income earned from the company’s primary activities (e.g., sales).
Expenses: Costs incurred to generate revenue (e.g., salaries, rent).
Net Income: The difference between total revenue and total expenses.
Cash Flow Statement
The cash flow statement provides information about the company's cash inflows and outflows over a specific period. It is divided into three sections:
Operating Activities: Cash flows from the company's primary operations.
Investing Activities: Cash flows from the purchase and sale of assets.
Financing Activities: Cash flows related to borrowing and repaying debt, issuing shares, and paying dividends.
Statement of Changes in Equity
This statement shows changes in the company's equity over a specific period. It includes information on retained earnings, dividends paid, and any new equity issued.