In Financial Accounting – Reporting for those outside the business, the 3 most important financial statements, relevant for budding entrepreneurs are:
1. The Statement of Financial Position or the Balance Sheet
2. The Statement of Income or The Profit & Loss Statement
3. The Statement Of Cash Flows.
The Balance Sheet shows the business’s assets, the liabilities, and the equities of a business. It is a ‘snapshot’ of the business economic resources at a certain date. That is why when you see one, it says something like, The Statement Of Financial Position as at dd/mm/yyyy.
Unlike a Balance Sheet that is a ‘snapshot’ of economic resources, the Profit and Loss Statement is a summary of the flows of earned revenues and incurred expenses of a business for a period of time. That is why when you see one, it says something like: Profit & Loss Statement for the year 200X.
The Statement of Cash Flows summarizes the ‘cash’ effects of the activities of a business for a period of time. These activities can be operating, investing and financing. The keyword that I would like to emphasize...
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