Whether you have hired an accountant for your business or you are handling the accounting on your own, you need to be aware of four types of financial reports that must be prepared regularly. The four most common financial reports which provide you with an accurate picture of your company’s status are statement of capital, cash-flow statements, income statements and balance sheets.
Statement of Capital
The statement of capital indicates changes in owners’ capital accounts. In the event that you are owner of the business, the capital account indicates how much of the company you own. When the accounting cycle ends, the net income goes to you. Before accountants make adjustments to an owner’s capital account, they must first clarify whether a company has a net income or net loss. This statement helps to understand where your company actually stands when it comes to income and loss.
Income Statement
The income statement lists and categorizes the revenues and expenses resulting from business operations during a specified period which could be a year, a quarter or a month. The difference between the stated revenues and expenses constitutes your company’s net income or net loss. In practical terms, income statements represent your company’s bottom line – whether you are making a profit or not.
Balance Sheet
Your assets are actually equal to your liabilities plus the owners’ equity. The balance sheet lists whatever your company owns (i.e., assets), everything your company owes to creditors (i.e., liabilities) and the value of your ownership stake in the company (i.e., owners’ equity or capital).
The balance sheet does not indicate changes over time but it provides an accurate and extremely vital picture of your company’s financial position at a specific point in time.
Cash-Flow Statement
The cash-flow statement reflects all of the sources and uses of your company’s money during the required accounting period. Sources of cash may include revenues, long-term financing or sales of non-current assets. Uses of cash may include operating losses, debt repayment and increases in a current asset account.
The cash-flow statement is extremely important because it indicates if cash-flow is increasing or decreasing, thereby helping to prevent cash-flow problems.