Financial Statement

Financial Statement Differentiation

The four main financial statements consist of balance sheets, statement of cash flow, shareholder’s (owner’s) equity, and income statement. Investors may use these statements to help gain valuable information in regard to a businesses financial standing.

Balance Sheet

The balance sheet is a financial statement of a company’s financial position at a certain time (Kimmel, 2009).A fundamental accounting equation is Assets = Liabilities + Equity. Furthermore, the balance sheet details assets and claims to assets at a specific point. The assets must balance with the claims to assets (Kimmel, 2009). Long-term liabilities include mortgages and bonds payable. Equity refers to owner’s equity if the business is a sole proprietorship or as shareholder’s equity if it is a public company. Equity is what remains of the business after the creditors have been paid. The heading of the balance sheet contains the company’s name, the statement, and the date. A creditor may evaluate an organization’s balance sheets to help determine if the company could repay the debt to them. .

Statement of Cash Flow

Statement of cash flow compiles the source and use of cash for a company (Kimmel, 2009). The statement details whether enough cash is on hand to carry out routine operations. The cash flow statement shows all the transactions of the business. Breaking down the sources and uses of cash into three categories: operating activities, investing activities, and financial activities. The statement of cash flows provides information to investors, and creditors in regard to the company’s operating, investing, and financial activities for a specific period. Cash flow statements allow the questions such as where the firm obtained its cash and what it did with it to be answered (Kimmel, 2009). The information gathered to create the cash flow statement comes from the start, and finishing of the balance sheets for the specific period, and from the income...