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In any business no matter how big or small financial statements are crucial if achieving
success is the ultimate goal. There are three main types of financial statements, they are:
Income statement, balance sheet and statement of owners equity. All three of these
financial statements can be looked upon to see where changes can be made in a company
to ensure better success.
The income statement is important because it presents the revenues and expenses allowing
a company to see the net income or net loss. It is prepared by simply subtracting the
expenses from the revenues.
The balance sheet however is critical in reporting the assets, liabilities and owners equity
up until a specified date. When preparing this financial statement a company simply takes
all of their assets (cash, accounts payable, supplies, equipment etc.) and adds them together
to get a total dollar amount for all assets. A company also takes all liabilities and owners
equity and adds them together as well. This enables the company to get a total dollar
amount for all liabilities and owners equity just as it can with assets.
The statement of owners equity is a simple statement that summarizes the changes in
owners equity for a specified period of time. It is calculated by the simple formula of:
Beginning owners equity + additional investments + net income - drawings = ending
