Financial statements are documents, providing information about the different fiscal activities of a company. Revenues earned, losses incurred, debts, assets, liabilities and other details of the financial performance of the company are enlisted in a financial statement.
Basically, there are four types of primary financial statements. The primary financial statements are balance sheet, income statement, statement of retained earnings and cash flow statement.
For the sake of convenience, the income statement is first dealt with, followed by the cash flow statement and then the balance sheet. The fourth type of primary financial statement- the statement of retained earnings can come in the fourth position. This is because, many values required in the balance sheet is obtained from the cash flow statement and income statement. Information on the four types primary financial statements are given below:
The income statements shows the performance of a company with regard to finances for a specific period. The income statements may be single step financial statements or multi step financial statements. Two vital aspects of the income statements are:
Statement of Cash Flow or Cash Flow Statement:
Indicates the various transactions taking place in the company. The cash flow statements are prepared for one fiscal year. This type of financial statement initially has a zero balance. Thereafter, any transaction that takes place, be it expenditure or profit earned, is recorded in the statement.
Indicates the financial resources of a company at a specified time. It shows, the fiscal resources controlled or owned by the company. The following are the important categories of a balance sheet:
Assets can be expressed as a sum of liabilities and equities owned.
Statement of Retained Earnings:
Indicates alterations in equity ownership in a company.
Generally Accepted Accounting Principles or GAAP:
The primary financial statements are made according to the guidelines of the GAAP, also known as the generally accepted accounting principles. The GAAP in the United States of America is called US GAAP. However, in the United States of America, the FASB or Financial Accounting Standards Board checks if the financial statements are made as per norms. It is the main authority in this regard (accounting principles).
Primary Financial Statements and the CPA s:
Primary financial statements are prepared by the accounting professionals referred to as certified public accountants or CPA s. The CPA s make the financial statements as per GAAP norms. In the event of any deviation from GAAP, the CPA s are held responsible and the financial statement is said to be manipulated.
Last Updated on : 26th June 2013