Financial Statemetns

1. The income statement or “statement of financial performance” presents a summary of an entity’s income and expenses for a specific period of time. The issue is a net profit (total income > total expense) or a net loss (total income < total expense).

2. The statement of changes in equity shows the changes in owner’s equity during a specific time period. Increases in owners’ equity = owner investments and net profit and decreases in owners’ equity = owner drawings and net loss.

3. The balance sheet or “statement of financial position” lists all the entity’s assets, liabilities and owners’ equity as at a specific date (e.g. end of a month/year).

4. The cash flow statement reports the cash coming in (cash receipts) and the amount of cash going out (cash payments) during a period. The issue is a net cash inflow (receipts > payments) or a net cash outflow (receipts < payments).

Providing information useful to users for making and evaluating decisions about the allocation of scarce resources though the financial statements are important for 2 types of users:

1. External users audited to secure that the company is handling record properly (e.g. loan demand and bank). The preparer must indicate to the