Financial
statements are records that provide an indication of an individual’s,
organization’s, or business’ financial status. There are four basic types of
financial statements: balance sheets, income statements, cash-flow statements,
and statements of retained earnings.
Typically, financial statements are used in relation to business endeavors.
Balance sheet
financial statements are used to provide insight into a company’s assets and
debts at a particular point in time. Information about the company’s
shareholder equity is included as well. Typically, a company lists its assets
on the left side of the balance sheet and its debts and liabilities on the
right. Sometimes, however, a balance sheet has assets listed at the top, debts
in the middle, and shareholders’ equity at the bottom.
Income financial statements present
information concerning the revenue earned by a company in a specified time
period. Income statements also show the company’s expenses in attaining the
income and shareholder earnings per share. At the bottom of the income
statement, a total of the amount earned or lost is included. Often, income
statements provide a record of revenue over a year’s time.
Cash-flow
financial statements provide a look at the movement of cash in and out of a
company. These financial statements include information from operating,
investing, and financing activities. The cash-flow statement can be important in
determining whether or not a company has enough cash to pay its bills, handle
expenses, and acquire assets. At the bottom of a cash-flow statement, the net cash increase or
decrease can be found.
Statements
of retained earnings show changes in a company's or organization’s retained
earnings over a specific period of time. These statements show the beginning
and final balance of retained earnings, as well as any adjustments to the
balance that occur during the reporting period. This information is sometimes
included as part of the balance sheet, or it may be combined with an income
statement. However, it is frequently provided as a completely separate
statement.
The average individual does not typically have a use
for financial statements. However, sole proprietors may use them in the same
manner as other businesses. High-net-worth individuals may also use them for
the purpose of obtaining loans, participating in investment deals, and
developing financial, tax, and business plans. In some cases, personal financial statements may be used when
running for a government office.