The Four Pillars Of A Financial Statement Accounting

The Four Pillars Of A Financial Statement Accounting

 

We manage our household finances by recording the monthly expenses and then accommodating for a savings plan to protect the present and the future. A business depends on the cash flow inwards and outwards and constant check of the financial health ensures the sustenance and expansion of the business. Officially, to establish the transparency of business operation and for the credibility of the organization as a professional company, there are standard financial statements released by the corporate, characterized by four specific documents. To learn more about each statement, click here or read below further to have a basic understanding.

 

  1. Balance sheet
  2. Income statement
  3. Statement of cash flows
  4. Statement of changes

 

 

  1. Balance sheet

This document gives the first-hand look at the financial position of the company and is basically a document made by balancing the assets and liabilities of the company, tabulated on two sides. The assets include both current and fixed assets and are considered for their market value, apart from the cash in hand. The total liabilities and the stock dividend to be paid are deducted from the assets to give the net assets or net worth of the company. This net worth is the current financial position of the concerned business and the better it looks, the better the company has for its growth and business relationships.

 

  1. Income statement

It is the corporate name of our expense book, which shows the income and the expenditure of the company for a pre-defined time period. The expenses are deducted from the gross revenues obtained from the sale of products or the services rendered by the company to give the net income or net profit. Income statements give the company management and investors to foray into the areas where their business is making money and losing money, thereby release measures to minimize losses. For example, a trader using the Crypto Code will have an account statement recording the number of coins earned and the options exercised for analysis.

 

  1. Statement of cash flows

This statement records the cash coming in and going out and how a change in the balance sheet can affect the cash and cash equivalents of the company. A statement of cash flows shows how the company is coping up currently in its operations by meeting the short-term debts and bills along with allocating money for continuing its business.

 

  1. Statement of changes

The statement shows the changes in the equity of the owner, and represents different types of financial conditions from the owner’s side, such as a statement of changes in partner’s equity if the company is held in partnership, shareholder’s equity for multiple investment companies etc. The essence is that any change in the equity earnings of the owner, investors, Share Capital, reserves or retained earnings are represented in the statement of changes.