There are three main financial statements that companies use to report their financial performance: the income statement, the balance sheet, and the cash flow statement.
The income statement, also known as the profit and loss statement, shows how much money the company earned and how much it spent during a specific period of time. This statement includes the revenue the company earned from selling its products or services, as well as the expenses it incurred to generate that revenue, such as salaries, rent, and cost of goods sold. The bottom line of the income statement shows the company’s net income, which is the amount of profit or loss it made during that period.
The balance sheet shows the company’s financial position at a specific point in time. It lists all of the company’s assets, such as cash, property, and equipment, as well as its liabilities, such as loans and accounts payable. The difference between the company’s assets and its liabilities is its equity, which represents the portion of the company that belongs to its owners.
The cash flow statement shows how the company’s cash balance changed during a specific period of time. It includes the cash the company generated from its operations, such as collecting payments from customers, as well as the cash it spent on things like inventory, equipment, and salaries. The cash flow statement is important because it shows how much cash the company has available to pay its debts and invest in future growth.