If you own a small business, you understand the importance of keeping your financial information organized. There are four basic types of financial statements used to do this: income statements, balance sheets, statements of cash flow, and statements of owner equity. You probably also know that bookkeeping can be a headache. If you are trying to make managing your company as easy and seamless as possible, it’s helpful to understand the four most common business financial statements. You can even download templates of these statements. Learn more about the details of the four statements and other components of financial reporting and you’ll have a greater understanding of what’s needed from your accounting team. One of the four types of financial reports is the income statement, which shows net income or net loss. This type of statement tracks all of the money coming in and all the money going out. Money paid out is called expenses, and money coming in is called revenue. When the expenses exceed the revenue, the income statement will show a net loss. The income statement is broken down into categories, including: Operating expenses include things like advertising and rent for office space. Non-operating expenses can include a one-time purchase and interest on borrowed money. Sales encompass the cost of all goods sold. The balance sheet is another one of the four types of financial statements, and of all the types of financial statements out there, this one seems to be the most ignored. Entrepreneurs are fascinated by the income statement but turn a disinterested eye to other components of financial reporting like the balance sheet. It’s unfortunate, too, because this is one of the most important types of financial reports. The balance sheet contains assets, liabilities, and owners’ or shareholders’ equity. The assets include cash, property, inventory, and anything else owned by the company. Assets are listed on the left side of the balance sheet. Liabilities and equity are listed on the right side. Liabilities include accounts payable or any type of payment made on a long-term loan. The owners’ or shareholders’ equity is established when the amount of liabilities is subtracted from the amount of assets. The reason it’s called a balance sheet is because the formula should always look like this: The third of the four major financial statements is the statement of cash flow. This business financial statement tries to accomplish one thing: tell you where all of your cash went. The components of financial reporting can get a little complicated on this one, so it may be hard to understand if you don’t have four years of accounting education. The number of categories on this statement will be different depending on the size of the company. For larger companies, the categories include: For smaller companies, there are only two categories: cash inflows and cash outflows. The basic principle of the statement of cash flow is to know and understand exactly where cash is flowing in from and where it is flowing out to. It enables the company to see if they are spending more than they are earning or vice versa. If the amount of cash is consistently more than the net income, it means the company’s net earnings are “high-quality.” If there are any changes in the owner’s equity between accounting periods, they are listed on the statement of owner’s equity, the fourth of the major business financial statements. The key components listed on this statement include: The additions and subtractions are for a particular period and can include things like net income, dividend payments, and withdrawals. So what are the four basic financial statements you need? Typically, you’ll need all four: the income statement, the balance sheet, the statement of cash flow, and the statement of owner equity. By preparing these four accounting financial statements, you will be able to see how well your company’s finances are doing or find areas that need improvement. If you don’t have the required time or understanding of financial statements, online services like ours can help. If you’re looking for an outsourced firm, be sure to check out our financial team. Written by Eddy HoodIncome Statement
Balance Sheet
Statement of Cash Flow
Statement of Owner’s Equity
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What are the 4 types of financial statements that every business needs? ›But if you're looking for investors for your business, or want to apply for credit, you'll find that four types of financial statements—the balance sheet, the income statement, the cash flow statement, and the statement of owner's equity—can be crucial in helping you meet your financing goals.
What are the four 4 most important financial statements that a company must produce what information is contained in each one? ›They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders' equity. Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time.
What are the four 4 elements of financial statement? ›For-profit businesses use four primary types of financial statement: the balance sheet, the income statement, the statement of cash flow, and the statement of retained earnings. Read on to explore each one and the information it conveys.
What are the 4 general purpose financial statements and in what order are they prepared? ›The order usually is: the income statement, the balance sheet, the statement of changes in equity, and the cash flow statement. The income statement starts off by showing company earnings and expenses. This tells us if the company made a profit or a loss.
What is the purpose of the 4 main financial statements for business? ›These four financial statements are vital for companies to understand where cash comes in and where it goes out, prepare for taxation and analyze their financial position.
What are the four basic financial statements? ›Typically, you'll need all four: the income statement, the balance sheet, the statement of cash flow, and the statement of owner equity. By preparing these four accounting financial statements, you will be able to see how well your company's finances are doing or find areas that need improvement.
What are the 4 key reports in any financial statement? ›Financial analysts use these statements to analyze a company's performance, then use that information to make predictions about its stock price and future success. Financial statements can be divided into four categories: balance sheets, income statements, cash flow statements, and equity statements.
What are the 4 pieces of financial information contained in the income statement? ›The income statement presents revenue, expenses, and net income. The components of the income statement include: revenue; cost of sales; sales, general, and administrative expenses; other operating expenses; non-operating income and expenses; gains and losses; non-recurring items; net income; and EPS.
Which of the 4 financial statements do you think is the most important and useful in predicting a company's success? ›The balance sheet is particularly important as it provides a snapshot of a company's financial position at a specific moment in time, empowering a business owner or manager to establish the company's most important ratios such as solvency versus liquidity that are particularly important for debt management.
What are the 4 types of statements in accounting? ›
- Balance sheets.
- Income statements.
- Cash flow statements.
- Statements of shareholders' equity.
All four financial statements are interrelated, and users must look at them jointly. Business transactions are intricate, and they influence many items in the financial reports simultaneously. For example, the profit figure for the year appears in both, the Income Statements and the Statement of Changes in Equity.
What is the purpose of the financial statements? ›"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant, reliable and comparable.
Why are financial statements important? ›Financial statements provide a snapshot of a corporation's financial health, giving insight into its performance, operations, and cash flow. Financial statements are essential since they provide information about a company's revenue, expenses, profitability, and debt.
What are the four types of financial transactions? ›There are four main types of financial transactions that occur in a business. These four types of financial transactions are sales, purchases, receipts, and payments.
What are the key elements of financial statements? ›There are five main elements of financial statements that are typically measured: assets, liabilities, equity, income, and expenses.
Are there 3 or 4 financial statements? ›The primary financial statements of for-profit businesses include the balance sheet, income statement, statement of cash flow, and statement of changes in equity.