Financial statements are detailed records of a company’s or people’s financial activities. They include the difference between assets and liabilities, income and expense, and the balance sheet. These documents are required to be filed with the appropriate regulatory bodies and to US stock holders. There are a wide variety of financial statements and each one exhibits a different level of accounting reporting. The four main types of financial statements are:
Income Statement: This is the primary document that presents cash flow and other financial transactions. It usually includes Balance Sheet, Receivable and Account Balances, and Income Statement. In order to prepare this document, accounting professionals divide the income statement into three sections: earnings and income growth, income from discontinued operations, and gross profit. This also includes information on financing. In United States, “income” refers to the money obtained from the sale of stocks, equity instruments, property, and retained earnings.
Statement of Operations: This section presents the income statement of a company’s operations for a given period. It includes total revenue, expenses, and other financial transactions recorded in the accounting system. All financial statements may not be in a year end. For example, a sales report may be recorded for the entire year, as well as balance sheet report for a full year. Management discussion regarding the results of operations takes place in management discussion regarding control arrangements. These discussions are part of the preparation of financial statements.
Statement of Effectiveness: This section presents overall results of an entity’s operation over a period of time. This includes a description of how the entity conducted business over the period and measures used to measure success. Financial reporting measures various aspects of an entity’s performance. The performance is measured by number of units sold or accumulated by customers, the average price per unit paid or obtained by the selling entity, the number of buyers and the average number of sellers at the trade show or fair. These items are reported to show trends over time.
Statement of Cash Flows: This section presents the statement of cash flows. The purpose here is to describe operating and investing activities. Cash inflows occur when revenues are received and spent. Lending activity is also considered an inflow. Interest paid on loans and the balance outstanding on loans are considering an outflow.
Annual Report: The objective of this section is to provide financial statements to investors and stakeholders (that is, creditors and members of the board of directors) who may need such information. This document is required annually. The first report is released in the second year after the end of the year. The report highlights all company activities by classifying different types of activity such as ownership changes, acquisitions, divestitures, repurchases and disbursements.
Statement of Liabilities: This section presents information about liabilities. All material liabilities are reflected here. This includes stock holders’ equity, accrued expenses, other current liabilities, long term liabilities, short-term liabilities and net worth. In addition, it lists debt, derivatives, leases, operating leases and tax liens.
Income Statement: This section presents information about the profit and loss. It first discusses general broad categories like sales, expense, gross profit, net profit and Gross margin. The balance sheet then provides information on revenue and expense, capital assets, liabilities, shareholders’ equity, property and financial liabilities. Generally, an income statement must not include depreciation, but it does not need to unless it is presented as part of the statement of cash flows. The accounting standards for profit and loss use the word ‘exclude’ rather than ‘don’t include’ when describing revenue and expense items.