Financial Statements
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Financial Statements Financial statements, the end-products of the accounting process, allow interested parties to make judgments on how well a company is doing. |
The two most important financial statements are the balance sheet and the income statement.
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Balance Sheet ________________________________________________ The balance sheet shows the financial position of a company at one point in time. Income Statement The income statement shows the financial performance of a company over a period of time. |
Financial statements allow interested parties to compare one organization with another or to compare accounting periods within one organization. For example, an investor may compare the most recent income statements of two companies in order to decide which one to invest in.
T
heaccounting
period
is a set period of time into which financial transactions are
divided in order to make the accounting process and interpretation
easier. It may be a month or it may be a year depending on the
purpose. A
company
may be interested in its monthly performance whereas the taxation
department is interested in a one-year period
What accounting period do you use for your personal finance? Why?
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The Balance Sheet
The balance sheet shows a summary of what a company owns and what a company owes on one particular day. It is divided into assets, liabilities and owner's equity. The balance sheet is useful in two important areas. It provides internal parties, such as the management of a company, with information for decision making. It provides external parties, such as current investors and potential investors, with data for evaluating the company's financial position.
A balance sheet is divides into two parts. On the left an organization's assets are listed. On the right the organization's liabilities and owners equity are listed