Activity 5.2 What are Financial Statements?

Financial Statements

By: MariCris Valdés

What are its main parts? Describe them.

What information is fed amongst them?

What are the 4 main financial statements in accounting?

What is the order in which they must be prepared?

What information is to be considered to prepare them?

• Net Income from the Income Statement is used in the Statement of Changes in Equity.
• Ending Equity from the Statement of Changes in Equity is reported in the Equity section of the Balance Sheet.
• Cash Flows from Operating Activities in the Statement of Cash Flows are related to net income from the Income Statement.

Statement of Cash Flows:

• Operating Activities: Cash from core business operations.
• Investing Activities: Cash from buying or selling assets.
• Financing Activities: Cash from borrowing or repaying funds.

Statement of Changes in Equity:

• Opening Balance: Equity at the start of the period.
• Additions: Contributions or retained earnings.
• Deductions: Dividends or withdrawals.
• Closing Balance: Equity at the end of the period.

Income Statement:

• Revenue: Income from sales or services.
• Expenses: Costs incurred to generate revenue.
• Net Income: Revenue minus expenses.

Balance Sheet:

• Assets: Resources owned (current and non-current).
• Liabilities: Obligations owed (current and non-current).
• Equity: Owner’s claim after liabilities.

The four main financial statements provide a comprehensive overview of a company's financial health and performance.

• Income Statement: Shows the company's revenues and expenses over a specific period.
• Balance Sheet: Displays the company’s assets, liabilities, and equity at a specific point in time.
• Statement of Cash Flows: Highlights the cash inflows and outflows from operating, investing, and financing activities.
• Statement of Changes in Equity: Illustrates changes in the owner’s equity over a period.

• Accurate Data: Ensure all financial transactions are recorded correctly.
• Consistency: Follow consistent accounting principles and standards.
• Completeness: Include all relevant financial data for the period.
• Compliance: Adhere to regulatory requirements and accounting standards.

1. Income Statement
2. Statement of Changes in Equity
3. Balance Sheet
4. Statement of Cash Flows