Define Financial Statement
A financial statement is a document or instrument that records the financial activities of a corporation. It helps someone see the financial weakness or strength or stability of an organization. There are several financial statements that are useful when you interpret the data.
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Balance Sheet
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A balance sheet is a financial statement that shows the assets, liabilities and shareholder's equity of an organization. There are certain ratios you can use to see if an organization is able to pay its debts in the short term.
Significance
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When a balance sheet is prepared, the assets should always equal the total of the liabilities plus the shareholder's equity.
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Liquidity
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Assets are listed in order of their liquidity. In other words, assets are listed according to how easily or quickly can they be converted into cash to pay debts.
Income Statement
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An income statement is a financial statement that shows how much profit an organization is making. Revenues minus expenses equals net income. Some organizations use this report to see how they can cut expenses, which will increase profits.
Cash Flow
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The cash flow statement is important because it shows how much cash is actually flowing in and out of an organization for a specific period of time. This report lets a company know if cash is available to meet day-to-day operations.
Investors
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Investors use financial statements to determine the financial health of an organization. These reports help investors decide whether they should invest their money in an organization.
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