what are financial statements
What are financial statements
The financial statements provide a summary of the accounts of a company or business enterprise, the balance sheet reflecting assets and liabilities of the company and the income statement showing the results of operations during a certain period.
- Balance Sheet
- Profit & Loss Statement
- Cash Flow Statement
Current Situation of the company
Bal Sheet gives everything about a business since inception.
The balance sheet gives the follwing.
- Assets and Liabilites of the business.
- Cash that the business has.
- Details about inventory and raw materials.
- The debt that the business has.
- Credit from suppliers.
- Credit given to cutomers.
Profit and Loss account
P & L in particular Period
Profit and loss account tells you information about a particular period.
- The Sales that the company made during the period. ex :- monthly, etc
- The profit that the company made during the period.
- The expenses during ghe period.
- Tax paid during the period.
- Net Profit.
Debit & Credit
The combination of balance sheet and profit and loss account is and profit ans loss account is called cash flow statement.
Business have revenue but the money is yet to come. cash flow tells us how strong a buiness is in terms of cash at bank and how much cash outflow has happened during a certain period
Financial statements also tell you the follwoing.
- The financial position of your business.
- Cash translation.
- Growth/Degrowth of the business.
- Perfromance compared to other companies in your domain.
The above 3 statements are made to fundamentally understand the last years performance of a business and to check the overall health of the company financial statements also help you make the right decisions at the right time.
These financial statements help you in creating decision making framework for your business.