Answer the following……
“What is the purpose of the income statement? Identify the major types of expenses that are shown on the typical income statement.”
The income statement is being utilized to present the financial information the company’s activities generate in a certain period. Through the income statement, the company can know how much revenue it generates in the given period n what expense the company is entitled to pay. In terms of the equation, the income statement can be view
“Net income = Revenue – Expense (ignoring the gains and losses incurred by the company)”
Sometimes, the income statement is known by the name “statement of operation, assertion of earnings, or profit and loss (P&L) report.”. According to both “International Financial Reporting Standards and the US generally accepted accounting principles” the statement of income may be viewed as a separate entity followed by the comprehensive income statement which begins with the single comprehensive income statement (CFA Institute, 2022). Moreover, the chief type of costs are shown on the classic income statement- operating, non-operating, Fixed, and Variable expenses (Corporate finance institute, 2022).
“What is the purpose of the balance sheet? Identify the major types of assets and the claims of creditors and owners shown on the typical balance sheet.”
The balance sheet helps in determining the financial position of the company after evaluating the assets, liabilities, and shareholders’ equity. It can also be viewed as a photograph through which an individual can capture all the financial information of the company (Courses.lumen learning, 2022). The balance sheet follows up the formal document which is followed by the accounting standards format which shows the company assets and liabilities irrespective of their nature, size, and scale of operation. A balance sheet is proven to be useful in formulating the annual report of the company.
The balance sheet helps in quickly finding numerous information about the company like whether the company is in the position of expanding, can it handles various financial ebbs and flows of revenue and expenses, and more. In short, it is the document through which the company can analyze the trends in the field of receivables and payables. It is also the main element that provides financial reporting to banks, investors, vendors, etc (Inc, 2022). The balance sheet comprises three types of assets existing assets (cash, account receivables, note receivables), fixed property (land, building, machinery), and whole assets (worth of both long term and short term assets) and in the creditor’s section, it has account payables, notes payables, current liabilities, and a lot more.
“What are the three different accounts that comprise the owners’ equity (also known as stockholders’ equity) section on a typical corporate balance sheet?”
Shareholders’ equity is the combination of capital stock, paid-in additional, and reserved earnings. In basic terms, shareholders’ equity is the amount that is held by the owners or shareholders of the concern when the company is wrapped up. This is also said as the owner’s equity and can be found on the stability sheet or finance report of the company along with the company’s assets and liabilities.
Many companies formulate their balance sheet in a way that they first put up the assets, then liabilities, and then shareholders’ equity. However, many companies showcase their shareholder’s equity as Total assets = total liabilities + shareholders’ equity (Kennon, 2021). Moreover, it got adjusted in the balance sheet in a number of items like other comprehensive income. This section in the balance is the revenues, extended, gains, and losses but are not included in the net income. Therefore, it comprises items like conversion allowance on foreign currencies and gains over the stockpile.
“What is a statement of cash flows? Describe the three standard sections contained in a statement of cash flows.”
The cash flow statement has got its applicability to the Companies Act 2013 (Clear Tax,2021). The cash flow report must be depicted with the activities like operating activities, investing, and financing activities. It is one of those primary documents for the small business which is highly used in business operations. With the cash flow declaration, the quantity of cash the trade is holding in the age can be predicted. However, this document doesn’t end here.
It also has the details of cash used during a certain time period which helps the management of the business is seeing where the cash is coming from and from where it’s going out. Moreover, it has majorly three sections and one optional supplement section that predicts how much finances is available in the company for its continuing operations and growth.
The cash from operating activities illustrates the information of the change in the ledger report balance for current resources and liabilities like account payables and receivables. In the second section, all the investing activities of the company like the purchase and sales of property and equipment are displayed (Kimball, 2019). Meanwhile, the third and the last section is dedicated to the financing activities like the purchase of bonds and stocks and dividend payments.
CFA Institute (2022). Understanding Income Statements. Retrieve on 2n My 2022, from https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/understanding-income-statements
Corporate finance institute (2022). Income Statement. Retrieved on 2nd May 2022, from https://corporatefinanceinstitute.com/resources/knowledge/accounting/income-statement/
Courses.lumen learning (2022). The balance sheet. Retrieved on 2nd May 2022, from https://courses.lumenlearning.com/boundless-accounting/chapter/the-balance-sheet/
Inc. (2022). The Basics of Balance Sheets. Retrieved on 2nd May 2022, from https://www.inc.com/articles/2000/05/18941.html#:~:text=A%20balance%20sheet%20comprises%20assets,equal%20liabilities%20plus%20owners’%20equity
Kennon. J., (2021). What is shareholders equity? Retrieved on 3rd May 2022, from: https://www.thebalance.com/shareholders-equity-on-the-balance-sheet-357295
Kimball, T., (2019). The three parts of a cash flow statement. Retrieved on 3rd May 2022, from: https://smallbusiness.chron.com/three-parts-cash-flow-statement-43816.html
Clear Tax (2021). AS 3 Cash flow statements. Retrieved on 3rd May 2022, from: https://cleartax.in/s/as-3-cash-flow-statements