Basic Financial Statement
Many aims and goals may exist within a business entity. One of your goals in operating
a physical fitness center, for example, could be to better your physical fitness.
Profitability and solvency, on the other hand, are the two primary goals of every firm.
Profitability refers to a company's ability to create revenue. The ability to pay debts
when they become due is referred to as solvency. A firm cannot survive to achieve its
other aims unless it can generate sufficient money and pay its obligations when they fall
due.
There are five different types of financial statements. They show a company's
profitability and strength when viewed as a whole.
1. Statement of Comprehensive Income (Income Statement).
The profit and loss statement is a financial statement that shows how profitable a
company is. The income statement, also known as the profit and loss statement or the
statement of revenue and expense, focuses on the company's earnings and expenses
during a specific time period.
2. The Statement of Financial Position (Balance Sheet).
The financial statement that shows a company's financial solvency and status. It
gives you a glimpse of what your company owns and controls, as well as what it owes
to other parties, liabilities and the amount of money the owner has put into the
company, and equity at any one time.
3. The Statement of Changes in Capital.
The financial statement that illustrates capital changes from the beginning to the
end of a period (e.g. a month or a year).
Components of the Statement of Changes in Capital
• Total income, including profit or loss: Add all profits and subtract all losses to get the
total income.
• The impact of accounting policy changes (the impact of changes made in the past):
Assume a corporation decides to go from last-in-first-out (LIFO) to first-in-first-out
(FIFO) inventory costing (FIFO). The corporation must handle the change
retrospectively and declare its impact on the statement of changes in equity because it
affects prior income.
Many aims and goals may exist within a business entity. One of your goals in operating
a physical fitness center, for example, could be to better your physical fitness.
Profitability and solvency, on the other hand, are the two primary goals of every firm.
Profitability refers to a company's ability to create revenue. The ability to pay debts
when they become due is referred to as solvency. A firm cannot survive to achieve its
other aims unless it can generate sufficient money and pay its obligations when they fall
due.
There are five different types of financial statements. They show a company's
profitability and strength when viewed as a whole.
1. Statement of Comprehensive Income (Income Statement).
The profit and loss statement is a financial statement that shows how profitable a
company is. The income statement, also known as the profit and loss statement or the
statement of revenue and expense, focuses on the company's earnings and expenses
during a specific time period.
2. The Statement of Financial Position (Balance Sheet).
The financial statement that shows a company's financial solvency and status. It
gives you a glimpse of what your company owns and controls, as well as what it owes
to other parties, liabilities and the amount of money the owner has put into the
company, and equity at any one time.
3. The Statement of Changes in Capital.
The financial statement that illustrates capital changes from the beginning to the
end of a period (e.g. a month or a year).
Components of the Statement of Changes in Capital
• Total income, including profit or loss: Add all profits and subtract all losses to get the
total income.
• The impact of accounting policy changes (the impact of changes made in the past):
Assume a corporation decides to go from last-in-first-out (LIFO) to first-in-first-out
(FIFO) inventory costing (FIFO). The corporation must handle the change
retrospectively and declare its impact on the statement of changes in equity because it
affects prior income.
