What Are the Four General Financial Statements: Learning Accounting Practices

In the accounting world, there are four general financial statements that companies use during their accounting process. These are the income statement, balance sheet, statement of stockholder's equity, and the statement of cash flows. Each of these statements serves a very important purpose in keeping track of the finances for a company.

The income statement is what shows the results of the company's operations for a set period of time. For example, it shows the gains, the expenses, and the losses, which lead to the company's final net income for that time period. Revenue is an inflow of cash and receivables that the company received by selling goods or services. An expense is an outflow of selling goods or services. Again, if somewhat like a revenue in that it is also inflow of resources, but it is not related to the company's main business. Finally, losses are like expenses and that they also are outflow of resources, but they too are not related to the primary activity of the business.

The balance sheet is basically what shows accompanies current position at an exact date. As the name suggests, it helps people see how the company is balancing their assets, liabilities, and stockholders equity. Assets are resources the company currently has. Liabilities are what the company owes the other people or other companies. Finally, stockholders equity is what the stockholders claim against a company's assets.

The statement of stockholder's equity is what shows the change of stockholder's equity for a set period of time. It has both inflows and outflows. Inflows show how much the original shareholders had invested in the company. Outflows are the dividends that the company pays out to current stockholders.

The statement of cash flows is what the company uses to explain the changes in the amount of cash that they have on the balance sheet for a set period of time. On the statement, changes such as operating expenses, investing activities, and financing activities are explained. It shows how much cash the company started with and how much cash the company finished with at the end of the period of time.

All four of these different statements play essential roles in the accounting for companies. Without them, it would be hard for them to keep track of all of their operations and display them for others and investors to see. Public companies are required to file certain documents that publicly display their activities to their stockholders.

Source:Reed, Jamie. Lecture: Accounting. October 9, 2009