The essential reports that tell the financial story of a business
Financial statements are the standardized reports that communicate a company's financial position, performance, and cash flows. Think of them as the ultimate scorecard for business — they reveal how well a company is doing, what it owns and owes, and how it manages its money.
Understanding how to read, interpret, and create these statements is an essential skill for accountants, business owners, investors, and financial analysts. This hub provides comprehensive explanations, examples, and templates for the three core financial statements.
What It Shows: A snapshot of what a company owns (assets), what it owes (liabilities), and what remains for the owners (equity) at a specific point in time.
The Equation: Assets = Liabilities + Equity
Key Components: Current and non-current assets, current and non-current liabilities, and shareholders' equity.
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What It Shows: Revenue earned and expenses incurred over a specific period, resulting in net profit or loss.
The Equation: Revenue - Expenses = Net Income
Key Components: Revenue, cost of goods sold, gross profit, operating expenses, and net income.
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What It Shows: How cash enters and leaves a business through operating, investing, and financing activities.
The Equation: Beginning Cash + Cash Inflows - Cash Outflows = Ending Cash
Key Components: Cash from operations, cash from investing, and cash from financing.
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| Assets | |
|---|---|
| Cash & Cash Equivalents | $25,000 |
| Accounts Receivable | $12,500 |
| Inventory | $8,000 |
| Total Assets | $45,500 |
| Liabilities | |
| Accounts Payable | $9,200 |
| Credit Card | $3,000 |
| Total Liabilities | $12,200 |
| Equity | |
| Owner's Capital | $20,000 |
| Retained Earnings | $13,300 |
| Total Equity | $33,300 |
Once you understand how to read financial statements, the next step is learning how to analyze them to make business decisions. We cover key financial ratios and analysis techniques including:
For a detailed guide on how to calculate and interpret these ratios, visit our Financial Ratio Analysis page.
Essential Financial Ratios Every Business Owner Should Know
Common Financial Statement Mistakes and How to Avoid Them
Bookkeeping Best Practices for More Accurate Financial Statements
Have questions about financial statements or need guidance on interpreting your business's financials? Reach out to our team of accounting experts.