Are you curious about what are those terms used in accounting? Can you relate to accountants when they talk about accounting? Let me introduce to you the common terms involve in financial statements in accounting.
A financial statement is a formal record of financial activities of the business, entity or person. It is commonly known as an account. It is useful in future time. Business owners will know the standing of their business as they look to the financial statements. They can identify what actions to take or changes to be made. Business partners will be informing also regarding the situation of the enterprise, partnership or corporation type of business. It will be prepared by accountants and will show at the end of the year. Let’s talk about the first one. Balance sheet is the financial account which shows all you assets, liabilities, equity, inventory and receivables. Examples of assets are building, machineries, cash, inventory, receivables, land and property. Liabilities are those payables like account payables and loan payables. And the other one is the Equity. Assets = Liabilities + Equity
Income statement is about the profit or loss accounts of the business. It talks about revenues and expenses of the company. Revenues are those inflows and expenses are those outflows of the business. Net Income = Revenue – Expenses
Statement of owner’s equity/ Statement of retained earnings explain the changes of retained earnings. It uses the information from the Income statement and present information to the balance sheet. You may not understand it well but this little background will help you.
Ending Equity = Beginning Equity + Investments – Withdrawals + Income
Cash flow statement talks about cash outflows and inflows. Uses of cash, sources of cash, as well as change of cash balance. There are different business categories such as operating activities, financing activities and investing activities.
To summarize it up, financial statements talks about the finances in the business. Mostly, these statements are keeping confidential since competitors will know the flow of the business. Only liable and authorized persons are allowed to have the copies of these.
