Financial Accounting For Dummies
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The three key financial statements are the income statement, balance sheet, and statement of cash flows. All three record the same daily accounting transactions occurring in a business, but each presents the facts slightly differently.

  • Income statement: The income statement shows a company’s results of operations. Using this statement, you can see if a business has income or loss during the financial period. All the company’s revenue, expenses, gains, and losses appear on this financial statement.

  • Balance sheet: The balance sheet shows the health of a business from the day it started operations to the specific date of the balance sheet report.Therefore, it reflects the business’s financial position. The balance sheets lists the company’s assets (resources such as cash and inventory), liabilities (claims against the assets), and equity (the difference between assets and liabilities, which reflects the owners’ total investment in the business).

  • Statement of cash flows: This financial statement reveals how a company is bringing in and spending its cash. Investors and potential creditors use this information to gauge whether a business has sufficient cash flow to pay dividends to its investors or repay loans made by its creditors.

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Maire Loughran is a self-employed certified public accountant (CPA) who has prepared compilation, review, and audit reports for fifteen years. Additionally, she is a university professor of undergraduate- and graduate-level accounting classes.

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