Basic Financial Statements Flashcards
Income Statement
Period of time, typically 1 year.
Also known as the “Profit and Loss Statement” or “P&L.” Shows the company’s revenues and expenses during a particular period. It shows how net income derives from revenue.
Balance Sheet
Moment in time.
Has three parts: assets, liabilities and ownership equity. The difference between the assets and the liabilities is known as equity. Best represents the wealth of a company at a point in time.
Another way to look at the balance sheet equation is that total assets equals liabilities plus owner’s equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner’s money (owner’s or shareholders’ equity). Balance sheets are usually presented with assets in one section and liabilities and equity in the other section with the two sections “balancing” – thus the name of the statement.
Cash Flow Statement
Period of time, typically 1 year.
Shows how changes in balance sheet accounts and income affect cash, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. This statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. A profitable company may not be able to pay its bills due to cash flow problems.
