The Four Financial Statements That Must Be Prepared by a Business Entity

A business entity uses financial statements to communicate its financial information with interested parties, such as investors (shareholders) and other stakeholders. Four main financial statements must be prepared to provide detailed financial information about a business entity at any given point in time. All four statements are interconnected and create different views of a company’s activities and performance. These statements include Statement of financial position, statement of profit or loss and other comprehensive income, statement of cash flows, Statement of changes in equity.
Statement of Financial Position

The statement of financial position, which is also known as the balance sheet provides information about the financial position of an entity at a particular point in time. It reports an entity’s assets, liabilities, and shareholders' equity account balances at the end of an accounting period.

 Statement of Profit or Loss and Other Comprehensive Income

Statement of profit or loss is a summary of a business entity’s financial performance during a given accounting period. It presents the incomes, expenses, and profits/losses generated during the reporting period.

Other comprehensive income (OCI) comprises income and expenses that are not recognized in profit or loss as required or permitted by other IFRSs.

  Statement of Cash Flows

The statement of cash flow provides an overview of the company's cash flows from operating activities, investing activities, and financing activities. This can provide a useful comparison to the income statement, especially when the amount of profit or loss reported does not reflect the cash flows experienced by the business.

Statement of Changes In Equity

The statement of changes in equity is a reconciliation of the beginning and ending balances in a company’s equity during a reporting period. The report format varies but can include the sale or repurchase of shares, dividend payments, and changes caused by reported profits or losses. This is the least used of the financial statements and is commonly only included in the audited financial statement package.

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The financial statements should be prepared and presented at the right time and must be relevant for the purpose for which they are prepared. They should also convey full and accurate information about the performance, position, progress and the prospects of an entity.

Financial statement analysis is used by internal and external stakeholders to evaluate business performance and value. When the financial statements are issued internally, the management team makes use of the financial statements to formulate appropriate policies and courses of action for the future. Investors, creditors and analysts make use of financial statements to ascertain the profit earning the capacity, present position and future prospects of the company and decide about making their investments in this company.

Following IFRS, GAAP or other applicable accounting standards to generate these statements is a critical factor in ensuring they present the actual financial picture of the business to management and external stakeholders.

The Four Financial Statements That Must Be Prepared by a Business Entity The Four Financial Statements That Must Be Prepared by a Business Entity Reviewed by proville on 3:48 pm Rating: 5

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