What is General Purpose Financial Sttements?

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Types of General Purpose Financial Statements

Below are the types of general-purpose financial statements, i.e. cash flow statementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more, income statementIncome StatementThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read more, balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more, statement of owners equityStatement Of Owners EquityA statement of owner’s equity is a financial statement that shows how the entity’s shareholder’s capital has changed over time (reflecting additions and subtractions of equity due to business transactions). When a corporation generates a profit, it raises the owner’s equity; when it makes a loss, it depletes the owner’s equity.read more or retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more.

#1 – Cash Flow Statement

  • The statement of cash flows describes how a company’s cash inflows and outflows change the company’s cash balance from the beginning of the year to the end of the year. The types of cash flows that cause the cash balance to change are classified into the following three activities, operating activitiesOperating ActivitiesOperating activities generate the majority of the company’s cash flows since they are directly linked to the company’s core business activities such as sales, distribution, and production.read more, investing activities, and financing activitiesFinancing ActivitiesThe various transactions that involve the movement of funds between the company and its investors, owners, or creditors in order to achieve long-term growth are referred to as financing activities. Such activities can be analyzed in the financial section of the company’s cash flow statement.read more.Cash flows fluctuations can be easily traced, thereby controlling the expenditure on unnecessary items and investment in a profitable manner.

Format of cash flow statement given below:

    • / – Operating cash inflows+ / – Investing cash inflows+ / – Financing cash inflows

Change in cash flows

    • opening cash balance= closing Cash balance

Example:

#2 – Income Statement

Basic income statement equation is:

Net Incomes = Revenue – Expenses

#3 – Balance Sheet

The Balance Sheet indicates at a given point of time how a company effectively used its resources. It shows all assets and liabilities at the given point of time.

An accounting equationAccounting EquationAccounting Equation is the primary accounting principle stating that a business’s total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. read more in the balance sheet is given below:

Assets = Liabilities + Shareholders Equity

#4 – Statement of Shareholder Equity or Statement of Retained Earnings

The statement of shareholder equity indicates how the shareholders’ ownership in the business, known as shareholder equity or stockholder equity, increased or decreased from the beginning to the end of the given accounting period. As per US GAAP, official term to be used for this statements is a statement of shareholder equity

The statement of shareholder equity equationShareholder Equity EquationShareholder’s equity can be calculated by deducting the total liabilities from the total assets of the company. It is a business’s net value, or the amount that shareholders can claim if the company is liquidated and its debts are repaid.read more is:

Beginning Shareholder Equity + Additions to Shareholder Equity – Deductions from Shareholders Equity = Ending Shareholders Equity

Advantages

Disadvantages

This has been a guide to What is General Purpose Financial Statements. Here we discuss the types of General-purpose financial statements, objectives along with examples, advantages, and disadvantages. You can learn more about from the following articles –

  • Annual Financial StatementsLimitations of Financial Statement AnalysisTypes of Financial StatementsFinancial Statement Limitations