Financial Statements

Financial Statement

Financial Statements

Companies prepare four financial statements from the summarized accounting data:

1. An income statement presents the revenues and expenses and resulting net income or net loss for a specific period of time.

2. An owner’s equity statement summarizes the changes in owner’s equity for a specific period of time.

3. A balance sheet reports the assets, liabilities, and owner’s equity at a specific date.

4. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.

These statements provide relevant financial data for internal and external users. Illustration below shows the financial statements of Softbyte.

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Note that the statements shown in Illustration above are interrelated:

1. Net income of $2,750 on the income statement is added to the beginning balance of owner’s capital in the owner’s equity statement.

2. Owner’s capital of $16,450 at the end of the reporting period shown in the owner’s equity statement is reported on the balance sheet.

3. Cash of $8,050 on the balance sheet is reported on the statement of cash flows.

Also, explanatory notes and supporting schedules are an integral part of every set of financial statements. We illustrate these notes and schedules in later chapters of this textbook. Be sure to carefully examine the format and content of each statement in Illustration above.