What are the main 3 financial statements?
The three main financial statements are the Balance Sheet, the Accounting Services Jersey City, and the Statement of Cash Flows. Together, they provide a comprehensive look at a company’s financial health, performance, and stability.
The Main 3 Financial Statements
These statements are standardized reports used by investors, creditors, and management to analyze a company’s financial condition.
1. Income Statement (Statement of Profit or Loss)
The Income Statement shows a company’s financial performance over a specific period of time (e.g., a quarter or a year). It reports the revenues earned and the expenses incurred to generate that revenue.
Purpose: To determine the company’s profitability (net income or net loss).
Core Formula:
Key Components:
Revenue/Sales: The top line, representing the total amount of money earned.
Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods or services sold.
Gross Profit: Revenue minus COGS.
Operating Expenses (SGA): Selling, General, and Administrative expenses.
Net Income (The Bottom Line): The final profit figure after all expenses, taxes, and interest are deducted.
2. Balance Sheet (Statement of Financial Position)
The Balance Sheet presents a company’s financial position at a single point in time (e.g., December 31st). It shows what the company owns and what it owes.
Purpose: To detail the company’s assets, liabilities, and owners’ equity. It must always “balance.”
Core Accounting Equation:
Key Components:
Assets: Resources the company owns (e.g., Cash, Inventory, Property, Plant, & Equipment).
Liabilities: Obligations the company owes to external parties (e.g., Accounts Payable, Loans, Deferred Revenue).
Shareholders’ Equity: The residual claim of the owners on the assets after liabilities are settled. This includes Contributed Capital and Retained Earnings.
3. Statement of Cash Flows (Cash Flow Statement)
The Statement of Cash Flows tracks the movement of cash and cash equivalents both into (inflows) and out of (outflows) a business over a specific period. It is crucial because a profitable company can still fail if it runs out of cash.
Purpose: To show how a company generated and used its cash, providing a more accurate view of liquidity than net income alone.
Three Main Activities:
Operating Activities: Cash flows generated from the core business activities (e.g., collecting cash from customers, paying suppliers).
Investing Activities: Cash flows related to the purchase or sale of long-term assets (e.g., buying new machinery, selling property).
Financing Activities: Cash flows related to debt, equity, and dividends (e.g., issuing stock, taking out a loan, paying dividends).
The Interconnectedness
These three statements are not independent; they are deeply linked:
The Net Income from the Income Statement flows into the Retained Earnings section of the Balance Sheet.
The Ending Cash Balance from the Statement of Bookkeeping and Accounting Services Jersey City the Cash Asset line item on the Balance Sheet.
Understanding how these three statements work together is essential for any form of financial analysis, whether it’s for investment banking, personal investing, or general business management.