Financial statements are formal records that present the financial activities and position of a business, person, or other entity in a structured and easy-to-understand manner. They are used by investors, market analysts, and creditors to evaluate a companys financial health and earnings potential. There are four main types of financial statements:
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Balance Sheet: This statement provides an overview of assets, liabilities, and shareholders equity as a snapshot in time. It shows what a company owns and what it owes at a fixed point in time.
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Income Statement: This statement shows how much money a company made and spent over a period of time. It summarizes the cumulative impact of revenue, gain, expense, and loss transactions for a given period.
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Cash Flow Statement: This statement shows the exchange of money between a company and the outside world over a period of time. It provides information on the sources and uses of cash.
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Statement of Shareholders Equity: This statement shows changes in the interests of the companys shareholders over time.
Financial statements should be understandable, relevant, reliable, and comparable. They are useful for determining the ability of a business to generate cash, tracking financial results on a trend line, and deriving financial ratios that can indicate the condition of the business.
