Financial statements are utilized in businesses for a number of different reasons. One important reason is that financial statements provide a snapshot of the company’s financial health. Without proper financial statements, you will not be able to monitor the company’s revenue, future finances, and calculate its stronger earnings. Not only is the financial statements important but so is their order. To help make more sense of the different types of financial statements and their order, Mark Dicus & Company will explain.
Cash Flow Statements
A cash flow statement is the first statement that helps to monitor the incoming and outgoing capital. However, the statement itself should only record the actual capital the company has on hand. There are three components to the cash flow statement that helps monitor the company’s incoming and outgoing cash flow. The three components are operations, investments, and finances. If the cash flow statement shows positive, this is good. Positive means there is more money coming in then is going out. If the cash flow statement shows negative, this means more money is going out than is coming in. Cash flow statements are essential and used most often by investors, lenders, and vendors.
Balance Sheet Statements
A balance sheet is a financial statement that helps to track the financial progress and consists of the assets equity, and liabilities. For good financial health the company assets should equal total liability and equity. When the assets don’t match up, it will show an unbalanced balance sheet. If the balance sheet is unbalanced, it is important to find the discrepancy. To know the financial health of you company it is important to keep up on balance sheets.
Income Statements
Income statements are also sometimes referred to as a profit and loss statement. The income statement reports the profit and losses of the business over a certain period of time. Income statements help to summarize the company’s operations of a specific time period. Depending on the company the time frame can range from monthly, quarterly, or yearly. The income statements of that time period help the company know and monitor its profits and losses.
Statement of Retained Earnings
The statement of retained earnings is often referred to as the statement of owner’s equity. This financial statement documents the company’s retained earnings at the end of each accounting period. Retained earnings are the company’s profits which can be used to pay off debt or liabilities, or even make an investment. Many businesses will use the statement of retained earnings independently. However it can also be part of the balance sheets. Statements of retained earnings that show positive earnings is an end goal of many businesses as they can use the extra money to either pay debt or invest the money into the company.
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It is vital to every company to properly file their financial statements with little to no errors. These financial statements helps the company monitor its financial health. If a company finds they need help with their financial statements and other accounting needs, contact Mark Dicus & Company today.