Financial Statement
A cash flow statement is a financial statement that shows a business's
cash inflows and outflows over a period of time. The three main financial
statements are the balance sheet, the income statement and the cash
flow statement. The balance sheet is a financial statement that gives us a
snapshot of a business's assets, liabilities and equity at a single point in
time. The income statement, the balance sheet and the cash flow
statement. An income statement is a financial statement that summarizes
a business's revenues and expenses over a period of time. Under the cash
method the income statement and the cash flow statement are equivalent
to one another. If the balance sheet is a snapshot of a point in time then
the income statement is more like a video or a boomerang covering a
range of time. On the left hand side of the balance sheet we have a list of
everything the business owns - its assets - and on the right we have
everything the business owes its liabilities and equity. At the bottom of
the balance sheet Tea-licious has total assets of 169 million dollars and
total liabilities and equity of 169 million dollars. The cash method of
accounting is often used by smaller businesses it says that revenue is
recognized when cash is received and expenses are recorded when cash
is paid out. The balance sheet is also called the statement of financial
position and it looks like this. In the header we have the business's name
followed by the name of the financial statement and directly below that
we have the point in time that we're looking at. Profitability is key to the
income statement which is why it's also called the statement of profit and
loss. This includes their original capital contributions which is the cash the
owners injected into the business and retained earnings which are the
cumulative profits that the business has held onto. This includes the direct
and indirect costs of running the business and finally when we subtract
expenses from revenue we see that Tea-licious generated seven million
dollars in net profit on the bottom line. If we collapse the balance sheet
down into its core components then we can see that Tea-licious has total
equity of 129.5 million dollars. Businesses need to make a cash flow
statement if they are using accrual accounting. Or the stuff that a
business owns is equal to the stuff that a business owes. Which is why
businesses also need a cash flow statement. Financial statements are
reports that summarize the activities and financial performance of a
business. As you can see in the header the income statement covers a
period of time. What is a cash flow statement? They're prepared at the
end of each accounting period and they're designed to give investors and
lenders a feel for a business's financial health. Which is fantastic news
because a balance sheet always has to balance. So the balance sheet is in
balance. The income statement looks like this. If we collapse it then we
find it the income statement is really showing us three things. Their
financial year has come to a close and they've finished putting together
their financial statements so let's look at them. It tells us how much profit
the business earned over a period of time. What is an income statement?
