Statement of Income, Balance Sheet and Cash Flow


To understand the state of health of a business, it will be necessary to know how solid it is financially, how many profits it generates or where its income comes from and how it is spent. The so-called "financial statements" is the tool that allows us to know...Rise school is Best School of Accountancy in Lahore.CA admissions in Lahore now open. The best School of Accountancy in Pakistan offers CA in Lahore and Best CA in Pakistan.
The ultimate goal of all for-profit organizations is to generate profits. That is the end result of the work of every leader or manager. Even in nonprofits where other important goals are pursued, financial monitoring is needed. In order to carry it out and understand the state of health of a business, it will be necessary to know how solid it is financially, how many profits it generates or where its income comes from and how it is spent. The so-called "financial statements" is the tool that allows us to know it.
The financial statements are composed of the following documents:
  • The Income Statement
  • The balance sheet and
  • The cash flow statement
I will comment below on the basic information provided by each of them, but it should be clarified that although the financial statements have a standard general format, according to the activity of the company they may have different items, although they are similar enough to be able to compare one Company with another and this is because they are governed by generally accepted accounting principles. Publicly traded companies in publishing their financial statements do not usually present them as closely as internal company documents do.
The statement of income or statement of income:
This document informs you if the company had profits during a certain period, ie if it has a positive or negative result in that period. It reports how much money the company spends to generate those profits, or its profit margins. It begins with income and deducts from them the various costs, expenses, depreciation, interest and taxes, leaving the end result is the profit.
The balance sheet:
Summarize the financial situation at a specific point in time, (a photograph, not the film) uses double-entry accounting based on the following basic equation:
Assets = Liabilities + Equity
This is how the balance sheet fits assets with liabilities. The agreements with the clients are in line with the promises made with suppliers and shareholders.
It tells us how much and where the money invested the company (assets), disaggregating how much of it comes from creditors (liabilities) and from shareholders (capital).
The balance begins with the assets (differentiating them according to the period in which it is possible to transform them into cash), then the Liabilities (also differentiating them in this way), by subtracting the assets liabilities the balance gives us the figure that represents the equity In the form of retained earnings and contributed capital.
The cash flow statement:

It reports how much cash was at the beginning of the period and how much at the end of it and describes how the company entered the cash and how it spent. It shows if the company is converting the profits into cash. If it is solvent. It may be that a company generates good results or profits but does not manage to convert them into cash. That is why many managers use cash flow almost daily as a tool to manage and more even when the company is small or has scarce cash resources. 

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