essential components of financial statement

Essential Components of Financial Statements

Financial Statements are the single most important source of information needed to make sound business decisions.

REALLY!!?

Components of a financial statement are the building blocks which are used for constructing financial statements.

Financial statements make it easier to understand the earnings and expenditure of a business establishment.

The most important

Components of a financial statement are listed here…

1.Balance Sheet

Balance Sheet helps in keeping track of an individual’s or business entity’s finances.

The critical components of Balance Sheet are…

Assets Liabilities Equity or Owner’s Equity

» Assets

They can be fixed or current assets. Fixed assets are the ones which remain constant for a very long period of time such as buildings and land whereas current assets are ones which can be readily converted to cash such a securities, inventory and other short term investments.

» Liabilities

These can be debts or legal obligation of a company which can occur during the business operations of a company. They are a hindrance to the growth of the company and can put it at a disadvantage.

» Equity or Owner’s Equity

It is the net value of an asset after deducting liability. Equity can contain contributions from shareholders, reserves and retained earnings.

2.Profit and Loss Statement

Profit and Loss statement gives a complete summary of revenue, expenses and costs incurred by a company for a given period of time.

The different aspects of profit and loss statement are:

Revenue Expenses Gains Losses

Revenue

The money that comes into a company because of its business activities during a particular period of time.

Expenses

The operational costs incurred by a company in order to earn revenue.

Gains

It’s the increase in the equity of a company through various transactions except from owner’s investments or revenues.

Losses

It’s the decrease in equity of a company through various transactions except from distributions to owners or expenses.

Did You Know?

Another terminology for Profit and Loss is Income Statement

3.Cash Flow Statement

It shows the inflow and outflow of cash in a firm over a particular accounting period.

The important components of Cash Flow Statements are..

Cash Flow from Operating Activities

Cash Flow from Investing Activities

Cash Flow from Financing Activities

» Cash Flow From Operating Activities

Operating activities are the production of goods, sales and finally delivery of the finished goods.

» Cash Flow From Investing Activities

These include cash flows from assets purchase, gains and losses from investments and other transactions of the company.

» Cash Flow from Financing Activities

These include the decisions taken by the company which help it in raising capital and most importantly repaying investors.

Each and every aspect of the financial statement is important and provides valuable insights into the working of the company.

Invensis provides a wide range of Finance and Accounting Services.

Finance and Accounting Services provided by Invensis are…

Accounting and Bookkeeping Tax Preparation Services Financial Analysis Reporting Record to Report Services Payroll Processing Services

Invensis is an ISO 9001 and 27001 certified company and has served 200+ clients around the world.

Invensis’ Finance and Accounting Services can provide precious insights about your company which can help improve its fiscal aspect.

To find out more about the services offered and benefits of partnering with Invensis, please contact us at sales@invensis.net