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Basic Financial Statements Chapter Number 2
Basic Financial Statements Chapter Number 2
Financial statements show the result of business in terms of monetary units in dollar or rupees the
result may be profit or loss of business financial position of the business and the position of cash in
business.
There are three basic financial statements which are prepared in business
It is a financial statement that describes where the enterprise stands at a specific date. It is sometimes
described as snapshot of the business in financial or dollar terms.
Balance sheet talk about the assets liabilities and owner's equity. Balance sheet is prepared at a
particular date.
The balance sheet displays the company's total assets, and how these assets are financed, through
either debt or equity. ... The balance sheet is based on the fundamental equation: Assets = Liabilities +
Equity.
Unlike the balance sheet, the income statement calculates net income or loss over a range of time.
For example annual statements use revenues and expenses over a 12-month period, while
quarterly statements focus on revenues and expenses incurred during a 3-month period
Statement of cash flows shows the increase and decrease in cash of business during a particular period
of time.
There are three activities due to which the cash of the business increase or decrease Which are as
follows
operating activities
These activities talks about the changes in cash due to expenses and revenues. expenses caused
negative cash flows and revenues cause positive cash flows.
Positive cash flow means cash comes in business and negative cash flow means cash goes out from
business
Investing activities
These activities talk about the changes in cash due to purchasing and selling of assets purchasing of
assets causes negative cash flows and selling of assets causes positive cash flows
Financing activities
These activities talks about the owners investment in business and obtaining loan by business from its
creditors