The Three Major Financial Statements
Hector L Irizarry
American Public University
There are three major financial statements that describe a company’s whole financial status. These reports are created to analyze financial data and describe, predict, and prevent problems in the operational and financial flow of a company. The three major reports cover the income statement, balance sheets, and statements of cash flow.
An income statement reports the earnings gained and expenses incurred by the firm under a period of time(Melicher, & Norton, 2014). It provides important financial information such as the business activities, financial inflow, outflow, and position in the firm(Robinson, Van Greuning, Henry, & Broihahn, 2009). This report is very important and analyzed by stockholders and lenders to evaluate the company’s performance. This report is also known as the P & L or profit and lost report, and it is analyze for different purposes, for example; evaluating an equity investment for inclusion in a portfolio, evaluating a merger or subsidiary, deciding between making a venture capital or any other private inversion, valuing a security for making an invested recommendation to other, and forecasting future net income and cash flow. Besides from showing the revenue or total sales, gross and net profit; the income statement also reflects expenses such as the costs of producing the goods that are sold, these costs include everything involve with production such as, labor, cost of raw materials, and overhead; it also includes depreciation costs
We move on to the balance sheet, this financial statement reflects the company’s assets, liabilities, and equity. Balance sheets are focus on a specific point in time, on the other hand the income statement reflect the financial information over a period of time. This financial record balances out according to the given formula...