Four Financial Statements and Related Footnotes

Four financial statements and related footnotes

Financial statements are the communication tools for the organization. There are many aspects of a business’s financial dealings reported in financial statements. Revenues coming in and expenses going out are key data that require reporting. Tangible items like equipment, property, and cash reserves are also reported in financial statements. Understanding these financial statements opens the door to analyzing finance data for budgeting, controlling, and making decisions.

The Four Financial Statements that most business use are: 1). Balance Sheets, 2). Income Statement, 3). Statement of retained earnings, 4). Statement of Cash Flows. The two most widely known statements are the balance sheet and income statement.

The Balance Sheet:

The balance sheet is a report on the financial condition of an organization and is required by GAAP. In the balance sheet, assets are expressed in terms of liabilities and capital, which must equal each other.

Assets: are the cash on hand, properties owned, and monies owed to the organization and can be liquidated and pay the organization’s debt.

Liabilities: are the debts the organization owes to their creditors and this goes against assets. In addition, the organization’s assets belong to the owners, this is called capital, and this goes against the assets.

The balance sheet equation:

Assets = Liabilities + Capital

Total assets should always equal liabilities and capital in order to be considered balanced.

Income Statements (AKA Profit & Loss Statements):

The income statement is a summary of the income and expenses of an organization in a given period and is required by GAAP. Usually companies create monthly and yearly income statements.

Income statements list all the areas where income is generated. Sometimes, the income is categorized certain categories:

• Income from sales

• Income from interest

• Income from investments

The income statement also...