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Notes C Financial Statements

Financial statements are formal records that reflect a company's financial health, primarily consisting of the balance sheet and income statement. The balance sheet provides a snapshot of assets, liabilities, and equity at a specific time, while the income statement details revenue, expenses, and net income over a period. These statements are essential for stakeholders to evaluate a company's viability and performance.

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50 views2 pages

Notes C Financial Statements

Financial statements are formal records that reflect a company's financial health, primarily consisting of the balance sheet and income statement. The balance sheet provides a snapshot of assets, liabilities, and equity at a specific time, while the income statement details revenue, expenses, and net income over a period. These statements are essential for stakeholders to evaluate a company's viability and performance.

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Simon Chen
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Financial Statements: A Brief Overview

Financial statements are formal records that provide


insights into a company's financial health and
performance. The two most commonly used financial
statements are the balance sheet and the income
statement.

1. Balance Sheet: This statement presents a snapshot


of a company’s financial position at a specific point
in time. It shows three main components:
o Assets: What the company owns (e.g., cash,
inventory, equipment).
o Liabilities: What the company owes (e.g.,
loans, accounts payable).
o Equity: The owners’ stake in the company
(e.g., retained earnings, common stock). The
fundamental formula is:

Assets=Liabilities+Equity

1
2. Income Statement: Also known as a profit and loss
statement, it shows the company's financial
performance over a period of time, typically a
quarter or a year. It details:
o Revenue: The total income from sales or
services.
o Expenses: The costs incurred in generating
that revenue.
o Net Income: The profit or loss after all
revenues and expenses have been accounted
for. The formula is:
o

Net Income=Revenue−Expenses

These financial statements help stakeholders assess the


financial viability, profitability, and overall stability of a
company. Other key financial reports include the cash
flow statement, which tracks the inflow and outflow of
cash, and the statement of shareholders' equity, which
outlines changes in the owners’ equity.

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