INTRODUCTION TO FINANCIAL STATEMENT

Under Financial statement analysis, the information available is grasped together in order to find a meaningful relationship. The main purpose of accounting is to provide sufficient information to meet the needs of various users. The general-purpose information provided by financial accounting is summarized in the primary financial statement, balance sheet, profit and loss account and cash flow statement.

BALANCE SHEET

The balance sheet also called the statement of financial position, supplies information on resources the organization currently controls, where they came from, and who has claims against them.

The balance sheet is the position statement which shows where the company stands in financial terms at a specific date.

The balance sheet reports the resources of the company(the assets), the company’s obligations(liabilities), and owner’s equity, which represents the difference between what is owned(assets) and what has to pay(liabilities).

PROFIT AND LOSS ACCOUNT

The profit and loss account, also known as the income statement, provides information on the efficiency of utilization of resources in obtaining current revenues-the current profitability of the organization.

The profit and loss account is an activity statement that shows details and results of the company’s profit-related activities for a period of time.

It reports the amount of net income earned by a company during a period, with annual and quarterly income statement being the most common.

Net income is the excess of a company’s revenues over its expenses. If the expenses are more than the revenues, then the company has suffered a loss for the period.

CASH FLOW STATEMENT

The cash flow statement provides information on how the organization is allocating the resources that were generated by the organization during the preceding year.
The cash flow statement is an activity statement the shows the details of the company’s activities involving cash during a period of time. The statement of cash flows reports the amount of cash collected and paid out by a company in the following 3 types of activities: operating, investing and financing.