Subject: Income Statement, Cash Flow Statement, and Balance Sheet
Case Study by Thomas Kingsley
All organizations use accounting software to process financial data. However, having a solid foundation about the mechanics of accounting is also essential. For example, one may need to manually check calculations to ensure the results are correct in order to rule out the notion that data corruption is causing inaccurate reports. Here, Thomas illustrates the Income Statement, Cash Flow Statement, and Balance Sheet. He breaks down the financial statements in a way any reader can comprehend how the financial information flows by illustrating how the numbers are calculated, thus taking the guesswork out of manually calculating accounting statements.
Income Statement, also known as Profit & Loss Statement, or Statement of Revenue and Expense
An income statement is a financial statement that reports a company's financial performance over a specific accounting period, usually a fiscal quarter or year. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over the specific accounting period.
How To Evaluate An Income Statement
If a company’s revenue exceeds its expenses, the income statement will report net income; otherwise it will report a net loss.
Cash Flow Statement
The statement provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.
How To Evaluate A Cash Flow Statement
Compare the amount of cash provided by operating activities with the amount of cash used by investing activities. Any deficiency in cash from operating activities must be made up with cash from financing activities.
A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. The three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
How To Evaluate A Balance Sheet
Compare the amount of debt versus the amount of stockholders’ equity to determine whether the company relies more on creditors or owners for its financing.
The balance sheet adheres to the basic formula: Assets = Liabilities + Shareholders' Equity