Accounting Reports

Background

We've talked about how to record transactions, so now let's talk about reporting the summation of those transactions.

Question

Describe the following reports: Balance Sheet, Income Statement, Statement of Equity, Statement of Cash Flows

Answer

Balance Sheet reports on the current financial position.

Income Statement reports on the income and expenses that happened over a given period of time.

Statement of Equity reports on the changes in the reported worth of the financial entity.

Statement of Cash Flows reports on the changes in the cash balance over a period of time (this is usually only used for entities that use accrual accounting). 

Analysis

When the owners of a business receive reports on how that business is doing, there are a few things they'd like to know and the following reports cover those areas.

One thing a business owner would like to know is the financial position of the business. What does it own? What does it owe? That is the role of the Balance Sheet, also known as the Statement of Financial Position.

Another thing a business owner would like to know is the operational result of the business. How much did it earn? What did it cost to make that income? Did the business make a profit - if so how much? Or did it lose money? If so, how much? And why? That is the role of the Income Statement.

These two statements are the basic two. However, there are two others that are oftentimes used to give more supplementary information:

The first of these two is the Statement of Owner's Equity. This report is used to show the change in the value of the business. This report is more helpful with businesses that have more complicated ownership structures, such as with a corporation.

The other of these is the Statement of Cash Flows. This report is used to show the changes in the amount of cash a business has at the end of a period. The reason this report is often used is that cash is by far the most asset any business can have. While there are many different things a business can own, only one, cash, can be used to pay for things. If a business runs out of money, it's in trouble, and so keeping track of cash is vital.

Vocabulary used:

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Where might you have come from?

Fact-orials Index

Accounting Principles:

• Comparability of Transactions
• Financial Entity

Where might we go?

Financial Reports:

• Balance Sheet