Question #78947
The statements are the profit and loss statement
statement of retained earnings
balance sheet
the cash flow statement.
Expert's answer
Answer on Question#78947 - Economics - Finance
The Balance Sheet represents a statement of the firm's financial position at a specific point in time. A statement balances firm assets (what it owns) versus its financing, either by borrowing or by investing the owners' money. The total assets are always equal to the liabilities and owner's equity.
The statement of Balance Sheet can be described by the following equation: Total assets = Total current assets (expected to be converted into cash within 1 year or less) + Net fixed assets = Current liabilities (expected to be paid within 1 year or less) + long-term debt (for which payment is not due in the current year) + owner's equity.
The assets are listed in order of their «liquidity», or the length of time for conversion the assets to cash (from most liquid - cash and marketable securities - down to the least liquid fixed assets). The liabilities and equity accounts are listed from short-term to long-term.
An example of typical structure of Balance Sheet is shown in the table below (on 31 December, or 30 September, 31 March, 30 June).
Note: in most cases company balance sheet has two sides: assets on the left and liabilities and ownership equity on the right.
The profit and loss statement is a financial statement. This statement summarizes the revenues, costs and expenses that generated by the company over the entire reporting period. The profit & loss statement (P&L) is also known as the income statement, statement of earnings, statement of operations, or statement of income.
P&L is based on simple equation: Profit = Revenues – Expenses
In practice, more complex equation used according business condition. For example:
- Profit = Revenues – Cost of Goods Sold – Salaries – Rent – Utilities – Depreciation
- Profit = Operating Profit(EBIT)
- Income Before Taxes (EBT) = EBIT – Interest Expenses
- Income After Taxes(EAT) = EBT – Taxes
- EAT = Net Income
Forms of Profit & loss statements are regardless of industry, but basic form may be representing by following example:
Profit & Loss Statement for Company ABC, Inc.
For the Year Ended December 31, 2017
The statement of retained earnings is a financial statement that reflects the changes in the retained earnings over the entire reporting period. Retained earnings are the part of net income that a company does not distribute among its shareholders. It retains in the business for growth of owned capital.
The statement of retained earnings can be described by the following equation: Retained earnings at the end = Retained earnings at the beginning + Net income – Dividends
Amount of retained earnings increases when company earns net income and decreases when company has net loss or paying dividends during the period.
Below is an example of retained earnings statement:
Company ABC, Inc.
Statement of retained earnings
For the Year Ended December 31, 2017
Retained earnings at January 1, 2017 $100
Add: net income earned in 2017 $80
Subtotal
$180
Less: dividends declared in 2017
$20
Retained earnings at December 31, 2017
$160
A cash flow statement is a financial statement that combines the data, regarding with the flow of cash in and out of the business during a given period. The cash flow statement used data about cash generated and used in the following categories:
- Operating activities
- Investment activities
- Financial activities
Cash flows from operating activities includes following elements:
- Cash receipts from customers (inflow)
- Cash paid to suppliers and employees (inflow)
- Income taxes paid (outflow)
Cash flows from investing activities includes following elements:
- Proceeds from the sale of equipment (inflow)
- Dividends received (inflow)
Cash flows from (used in) financing activities includes following elements:
- Dividends paid (outflow)
- Interest paid (outflow)
- Issuance of owned common stock (inflow)
- Purchase of owned common stock (outflow)
- Issuance of debt (inflow)
- Repayments of debt (outflow)
