What are the 4 basic financial statements of a company?
The financial statements of a company reflect its economic and patrimonial situation, providing a general image of it. These documents reliably collect relevant economic data for the administration, managers, regulators, shareholders and/or owners, so that they can make strategic decisions about the course of the business.
What are financial statements for?
Financial statements are a legal requirement for companies , which must submit them to the public administration annually. They are also useful internally to facilitate decision-making based on quality economic information and to analyze the evolution of the business by comparing it with previous periods.
Financial statements are also an indicator of transparency , so they can improve the image of the company in the eyes of customers and suppliers. In addition, they are essential to access financing as investors look for businesses with solid financial statements.
Types of financial statements of a company
- Balance sheet . This balance is part of the annual accounts that companies prepare at the end of each accounting year. Reveals the economic and financial situation of the business at a given time, including its assets (assets and rights, whether long-term investments, inventories, realizable and available), liabilities (debts and obligations due in the short or long term) and equity net (own funds and grants).
- Income statement for the year. It summarizes the operations of the economic activity of the company during a certain period of time. It allows assessing the profitability of the business and knowing if the financial objectives are being met, since it reflects the benefits before and after applying taxes, after subtracting expenses and losses from income.
- Statement of changes in equity. This type of financial statement reflects the movements in the items that make up the company’s equity. It includes the statement of recognized income and expenses, as well as the changes that have occurred in them, the variations caused by the partners or owners and the adjustments to equity due to changes in the application of accounting criteria.
- Statement of cash flows. It informs about the variations of the cash and the working capital that the company has in a certain period, so it allows to determine its capacity to generate cash, to know the origin and destination of the cash and to estimate the liquidity needs. Includes payments and receipts related to the main activity of the company, as well as investment and financing activities.
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