The Financial Statements


The preparation of the financial statements is the seventh step in the 9-step accounting cycle. We will take a look at them first before getting into the whole process for you to have a picture of what we are trying to produce in an accounting system. The financial statements are the end-product reports of accounting.

What's in Here

This chapter of the Accounting 101: Basics course presents the components of a financial statements package. The lessons here focus on a service-type sole proprietorship business.

The preparation of the financial statements is the summarizing phase of accounting.

A complete set of financial statements is made up of 5 components: Statement of Comprehensive Income, Statement of Changes in Equity, Balance Sheet, Statement of Cash Flows, and Notes to Financial Statements.

Image link to Introduction to Financial Statements
Lesson 1

Financial Statements Introduction: An Overview

Financial statements refer to a specific set of reports produced in an entity's accounting system. The objective of these reports is to provide information about the entity. Let's discuss the components of a complete set of financial statements.
Image link to Income Statement
Lesson 2

Income Statement a.k.a. Profit and Loss Statement

The Income Statement is also referred to as Profit and Loss (P&L) Statement. It shows an entity's results of operations for a particular period of time. The income statement presents the period's income and expenses, and the resulting net income or loss.
Image link to Statement of Equity
Lesson 3

Statement of Changes in Owner's Equity

Capital is affected by four elements. It is increased by owner contributions and income, and decreased by withdrawals and expenses. The Statement of Owner's Equity shows the movement in capital as a result of these elements.
Image link to Balance Sheet
Lesson 4

Balance Sheet a.k.a. Statement of Financial Position

A Balance Sheet shows the financial position or condition of a company as of a certain date. Hence, it is also called Statement of Financial Position. The Balance Sheet presents the total resources owned and controlled by the company (assets) and the claims against them (liabilities and capital).
Image link to Cash Flow Statement
Lesson 5

Statement of Cash Flows

Accountants follow the accrual basis in measuring income and expenses. However, some users of accounting information are interested in the cash transactions of the company; hence the need to present a Statement of Cash Flows.
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