The financial statements of a company give information regarding the entity’s assets, liabilities, equity, income, and costs, including profits and losses, contributions by and distributions to owners, and cash flows to achieve this goal. Without the insight of financial statements, it is otherwise difficult to analyze the financial health of an organization. An organization must combine the information from one financial statement with the information from another financial statement to acquire a better knowledge of the financial health of your organization. The goal of financial statements is to give information about the current financial condition, future financial performance, and cash flows that will be beneficial to a broad variety of users in the process of making economic choices for a particular company.
The three most important financial statements for an organization are the income statement, balance sheet, and cash flow statement. The income statement also called a profit and loss statement, which summarizes revenue, gain, expense, and loss transactions for a given accounting period. The balance sheet shows the book value of a company by summarizing the assets, liabilities, and owners’ equity at a point in time. The cash flow statement takes the net income and adjusts it for any non-monetary costs that may have occurred during a particular accounting period. It displays a company’s capacity to function in both the short and long term depending on the amount of money that flows into and out of the company.