Unlike the balance sheet, the income statement covers a range of time, which is a year for annual financial statements and a quarter for quarterly financial statements. The income statement provides an overview of revenues, expenses, net income, and earnings per share. Your income statement, also called a profit and loss statement financial statements are typically prepared in the following order (P&L), reports your business’s profits and losses over a specific period of time. You can use an income statement to summarize business operations for a certain time frame (e.g., monthly, quarterly, etc.). The statement of cash flows adds all cash inflows and outflows to find the net change in cash for a period.

• The cash flow statement, also called the statement of changes in financial position, documents a company’s cash inflows and outflows.
• This information ties back to a balance sheet for the same period; the ending balance on the change of equity statement equals the total equity reported on the balance sheet.
• Financing activities include debt issuance, equity issuance, stock repurchases, loans, dividends paid, and debt repayments.
• Using accounting software, for example, leverages technology to handle all the number crunching and avoid manual accounting errors.
• Cash from operations includes any changes made in cash accounts receivable, depreciation, inventory, and accounts payable.

Together, these financial statements attempt to provide a more clear picture of a business’s financial standing. A balance sheet, income statement, and cash flow statement are the three most common financial statements for small business owners. Broadly, financial statements are reports that show a business’ performance and profitability.

Cash flow statement

Last but not least, use all of your financial data from your other three statements to create your cash flow statement. Your cash flow statement shows you how cash has changed in your revenue, expense, asset, liability, and equity accounts during the accounting period. The cash flow statement, also called the statement of changes in financial position, documents a company’s cash inflows and outflows. Most companies produce a multi-step income statement, which documents how a firm produces net income. In a multi-step income statement, you first find your gross profit then your operating income for a period of time.

Check out a quick overview below of the four types of financial statements in accounting. Read on to learn the order of financial statements and which financial statement is prepared first. There are a few red flags that can indicate trouble with your financial statements.

Liabilities

An often less utilized financial statement, the statement of comprehensive income summarizes standard net income while also incorporating changes in other comprehensive income (OCI). Other comprehensive income includes all unrealized gains and losses that are not reported on the income statement. This financial statement shows a company’s total change in income, even gains and losses that have yet to be recorded in accordance with accounting rules. Your statement of retained earnings, or statement of owner’s equity, lists what your business’s retained earnings are at the end of an accounting period.

Financing activities include debt issuance, equity issuance, stock repurchases, loans, dividends paid, and debt repayments. Investors and financial analysts rely on financial data to analyze a company’s performance and make predictions about the future direction of its stock price. One of the most important resources of reliable and audited financial data is the annual report, which contains the firm’s financial statements. Use your net profit (or net loss) from your income statement to prepare your statement of retained earnings. After you gather information about your net profit or loss, you can see your total retained earnings and how much you’ll pay out to investors (if applicable). Most of the cash activity in a business takes place in the operating category.

Financial Statements: List of Types and How to Read Them

By comparing financial statements to other companies, analysts can get a better sense of which companies are performing the best and which are lagging behind the rest of the industry. It provides insight into how much and how a business generates revenues, what the cost of doing business is, how efficiently it manages its cash, and what its assets and liabilities are. Financial statements provide all the details on how well or poorly a company manages itself. Although financial statements provide a wealth of information on a company, they do have limitations. The statements are often interpreted differently, so investors often draw divergent conclusions about a company’s financial performance. The operating activities on the CFS include any sources and uses of cash from running the business and selling its products or services.

The balance sheet,  lists the company’s assets, liabilities, and equity (including dollar amounts) as of a specific moment in time. Offering a great deal of transparency on the company’s operating activities, the income statement is also a key driver of the company’s other two financial statements. Net income at the end of a period becomes part of the company’s stockholders’ equity as retained earnings. Net income is also carried over to the cash flow statement where it serves as the top line item for operating activities.