Common Financial Reports
Income statements, statements of capital, balance sheets and cash-flow statements
During the accounting cycle, accountants track, organize and
record the financial dealings of a company. At the close of each period,
accountants use the information they've gathered to prepare financial
statements. Income statements, statements of capital, balance sheets and
cash-flow statements are four common financial reports.
An income statement is a type of summary flow report that lists and categorizes
the various revenues and expenses that result from business operations during a
given period—a year, a quarter or a month. The difference between revenues
and expenses represents a company's net income or net loss. Income statements
are important to business owners because they represent the bottom line.
Statement of Capital
The statement of capital shows changes in owners' capital accounts over time.
If you're a business owner, your capital account represents how much of your
company you own. At the close of the accounting cycle, any net income becomes
yours. Whether you reinvest it in the business, use some of the profit as
personal income or withdraw all of it, the owner's statement of capital will
reflect any changes to the capital account.
Statements of capital typically are prepared after the income statement.
Before accountants can make adjustments to an owner's capital account, they
need to know whether a company has a net income or net loss.
The balance sheet is based on this equation: assets = liabilities + owners'
equity. It lists everything your company owns (assets), everything your
company owes to creditors (liabilities) and the value of your ownership stake
in your company (owners' equity, or capital).
Unlike the income statement and statement of capital, which show changes in
a business's financial condition over time, the balance sheet—also referred
to as a statement of financial condition—provides a snapshot of a company's
financial position at a specific point in time.
The cash-flow statement shows all sources and uses of a company's money during
the accounting period. Sources of cash listed on the statement include
revenues, long-term financing, sales of non-current assets, an increase in any
current liability account or a decrease in any current asset account. Uses of
cash include operating losses, debt repayment, equipment purchases and
increases in any current asset account.
Because it shows whether a business's cash flow is increasing or decreasing,
a cash-flow statement is useful for warding off cash-flow problems.