A financial statement is a document that outlines relevant financial information about an entity. Note that this entity can be an individual, a business organization, a nonprofit organization, or a government agency. Essentially, it is a formal record of financial activities and financial position.
There are four basic types of financial statement. These are the balance sheet, income statement, statement of cash flow, and statement of retained earnings. This article briefly enumerates and defines these different types of financial statement.
Balance Sheet vs. Income Statement vs. Cash Flow Statement vs. Statement of Retained Earnings: Definitions and Differences
1. Balance Sheet
A balance sheet or a statement of financial position represents a snapshot of the financial standing of an entity based on a specific date and at a specific time by providing information about its assets, liabilities, and/or equity. It also provides information on how assets are financed, whether through debt or equity, and whether with short-term capital or long-term capital.
2. Income Statement
An income statement captures the results of operation during a specified length of time, such as within a year, quarter, or month. It simply reports the generated income or revenues and the incurred expenses, thus providing information about the generated profits as well. This type of financial statement is also known as a statement of comprehensive income, a statement of revenue and expense, or a profit and loss report.
3. Statement of Cash Flow
A statement of cash flow or a cash flow statement reports the cash flow activities, specifically the operating, financing, and investing activities. To be specific, it represents investment decisions or uses of cash and financing decisions or sources of cash. Furthermore, it illustrates how cash flow activities have impacted the cash position during a specified period.
4. Statement of Retained Earnings
A statement of retained earnings represents the changes in the common equity account between balance sheet dates. Equity is determined based on the difference between assets and liabilities. Note that this type of financial statement is also called as a statement of changes in owner’s equity under a sole proprietorship, a statement of changes in partners’ equity under a partnership, and a statement of changes in shareholders’ equity under a corporation. When used by a government organization, this is known as a statement of taxpayers’ equity.