What is Financial Statement?

by Gily Tenorio on August 14, 2010

in Financial Education 101

What isĀ  a financial statement? In layman’s term, financial statement shows you where a company’s money came from, where it went and where it is now. Reading a financial statement can be hard to some people but once you learned the basics of financial statement, it will be easy just like reading an electricity, credit card bill or bank statement of account.

Actually, it isn’t difficult. If you know how to read a credit card bill, you can learn to read basic financial statements. Basics are not hard to learn, you only need a bit of patience.

So the question is: Why do you need to study financial statement? A financial statement is a documentation of the company’s financial status or condition. It is very helpful for an investor because it will determine if a company is a good investment or not.

A financial statement will tell you whether a company has many assets or many liabilities. It is designed in such a way it is easily understand by common people who are not inclined to complex financial accounting or calculations. It is really simple and usually it is in tabulated form just like any kinds of billing statements.

A financial statement can be categorized or divided into four parts: balance sheets, income statements, cash flow statements and statements of shareholder’s equity. Balance sheets show what a company owns or its assets and what it owes or liabilities at a fixed point in time for example in a fiscal year. Income statementĀ  is a company’s financial statement that indicates how the revenue is transformed into the net income.

In financial accounting, a cash flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The fourth financial statement, called a statement of shareholders’ equity, shows changes in the interests of the company’s shareholders over time.

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