Different types of financial statements - Essay Example

There are four different types of financial ments being used by organizations to keep a track of their accounts and finances. The most basic financial statement used is the balance sheet. A balance sheet describes the financial situation of a company at any given point of time. It lists the various assets of the company on one side and liabilities on the other side. The sum of assets must always be equal to the sum of liabilities hence leading to a balance in the balance sheet. The assets include fixed assets such as land, machinery, furniture etc.

as well as short term assets such as cash and liquid funds. The liabilities include long term liabilities such as loans as well as short term liabilities such as Accounts payable. A balance sheet helps a company in analyzing its current financial position vis-à-vis any other time period. A balance sheet most important for the management of a firm.The second important financial statement used is the income statement also known as profit and loss statement. The income statement is generally prepared at the end of a time period such as a quarter or a year.

It gives information of the total income earned during the period and its sources. It also lists the various expenses. The difference of the two is used to calculate gross margin and net profit. Based on income statement companies take decisions on dividend declaration and future investment plans. The income statement is most significant for the investors of a firm.Cash flow statement is the third important financial statement. It helps a company to analyze the cash flows financial, operating and investment activities.

This financial statement is important to understand the availability of working capital for a firm. Cash flow statement is very significant for the creditors of a firm.The fourth financial statement used is the statement of retained earnings. This statement depicts the changes in the title rights of equities if there are any. This is the least used of the four financial statements. It is also called as statement of shareholders’ equity as it calculates the money that will be left with a company after selling its assets and fulfilling its liabilities.

ReferencesTypes of financial statements. Retrieved November 17, 2011 from Beginners’ guide to financial statements. Retrieved November 17, 2011 from