Femia Accountants is a product of David Femia's long-term efforts to provide information and solutions to taxpayers. With the expertise of some of the best personal accountants in Perth, Femia Accountants was established as a one-stop source that provides the support that individuals and small to medium-sized enterprises need.
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Understanding the 4 basic financial statements
1. Femia Accountants
Phone: 08 9316 4500
Email: info@femia-accountants.com.au
Address: 19 Riseley St Ardross WA 6153
Understanding the 4 Basic Financial Statements
2. Accounting is the language of business, and without it, companies would find it impossible to keep track of the many numbers that influence their bottom line. With this in mind, there are four basic financial statements that essentially summarize the entire financial state of a business, and understanding these statements is crucial to make informed decisions.
Depending on the area and the specific company, each of these statements may have a different name, but their basic function remains the same.
1. Balance Sheet – Also commonly known as the Statement of Financial Position, the balance sheet gives a quick glance at what the business owns and controls. It lists the assets, and sorts those assets into both liabilities (what the company owes to creditors) and equity (the parts of the business that belongs to the owners).
3. 2. Income Statement – The statement that most people are familiar with, the income statement tracks the revenues and expenses of the business up until a specific date, thus giving an accurate depiction of a company’s profitability over a certain time period. It shows whether the company made a profit or suffered a loss by subtracting the expenses from income.
3. Cash Flow Statement – While the last statement dealt with profitability, how much cash the business has at any point in time is the domain of the cash flow statement. It shows the movement of cash on hand and bank balances over a certain period, as it keeps track of the company’s operating, investing, and financing activities.
4. Statement of Owner’s Equity – This statement keeps track of the changes in owner’s equity over time. How much the owner actually possesses changes depending on many factors, including dividend payments, net profits or losses, or even the correction of accounting errors.
4. Fully understanding the details of these statements is the key to properly analysing the financial health and prosperity of a business. Each of them is related to the others in some way, making it impractical to focus solely on just one.
Sources:
http://www.femia-accountants.com.au/
http://accounting-simplified.com/financial/statements/cash-flow-statement.html
http://www.accountingcoach.com/balance-sheet/explanation