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Financial Statements – Understandings

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Aisha Khan
Financial Statements – Understandings

What Are Financial Statements?

Financial statements are written files that describe a company's tasks and economic activities. Government authorities, accountants Granada Hills, corporations, and others frequently audit financial statements to verify accuracy and tax, financing, and investing purposes. The following are examples of financial statements:

  • Balance sheet
  • Income statement
  • Cash flow statement.

 

TAKEAWAYS IMPORTANT

  • Financial statements are written statements that describe a company's operations and economic activity.
  • The balance sheet is a snapshot of an organization's assets, liabilities, and stockholders' equity.
  • The income statement is primarily concerned with a company's revenues and expenses over a given period. The report creates a company's profit amount termed net income after costs are reduced from sales.
  • The cash flow statement (CFS) assesses a company's ability to generate cash to pay debts, cover operating expenses, and make investments.

 

Financial Statements

Using Data from Financial Statements

Accountants use financial data to examine a company's performance and forecast the stock price's future direction. The annual report, which covers the firm's financial statements, is one of the essential sources of reliable and audited financial data.

Investors, market analysts, and creditors use financial statements to assess a company's financial health and profits potential. The three balance sheets, income statements, and cash flows are the three primary financial statement reports.

 

Understanding Balance Sheets

The balance sheet is a snapshot that depicts a company's assets, liabilities, and stockholders' equity at a certain point in time. In the balance sheet, you can see when the sample was taken, often at the end of the fiscal year indicated by the date at the top.

 

The Balance Sheet Formula

Assets = (Liabilities + Owner's Equity)

It is already computed what the balance sheet totals are, but how do you determine?

Find the total assets on the balance sheet for the period in question.

Compile a list of all obligations, which should be included in a separate balance sheet section. It is possible that contingent obligations will not be included.

Find the total amount of shareholders' equity and multiply it by the total amount of liabilities.

The total of assets should equal the total of liabilities plus the total of shareholders' equity.

 

Data from the Balance Sheet

Using the balance sheet, you can see how assets are funded, whether through obligations like debt or stockholders' equity, including retained earnings and additional paid-in capital. The support on the balance sheet is displayed in descending order of liquidity.

 

Debts are mentioned in the order in which they will be paid off. Short-term or current liabilities are debts that are expected to be paid within a year. In contrast, long-term or non-current liabilities are deficits scheduled to be paid over a period of more than a year (for example, pension obligations).

Items that are included in the Balance Sheet are as follows

  • Assets
  • certificates of deposit.
  • Inventory
  • Cash
  • Treasury bills
  • Liabilities
  • Accounts receivables
  • Debt including long-term debt
  • Wages payable
  • Dividends payable
  • Shareholders' Equity

The difference between a company's total assets and its total liabilities is known as shareholders' equity. The lump-sum amount that would be returned to shareholders if all of the company's assets were liquidated and all of the company's debt was paid off is referred to as shareholders' equity.

Earnings not distributed among shareholders as dividends are known as retained earnings, and it is a component of shareholders' equity.

 

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