The purpose of financial accounting statement is mainly to show the financial position of a businesses at a particular point in time and to show how that business has performed over a specific period
The three main financial accounting statement that help achieve this aim are
(1) The profit and loss account for reporting period
(2) A balance sheet for the businesses at the end of the reporting period
(3) A cash flow statement for the reporting period
A balance sheet shows at a particular point in time what resources are owned by a businesses and what it owes to other parties. It also shows how much has been invested in the business and what the sources of that investment finance were.
It is often helpful to think of a balance sheet as a snap shot of the business a picture of the financial position of the business at a specific point. Whilst this is a useful picture to have, every time an accounting transaction takes place, the snap shot picture will have changed.
By contrast, the profit and loss account provides a perspective on a longer time period. If the balance sheet is a digital snap shot of the business, then think of the profit and loss account as the DVD of the business activities. The story of what financial transaction took place in a particular period and what the overall result of those transaction was. Not surprising, the profit and loss account measures profit.
The three main financial accounting statement that help achieve this aim are
(1) The profit and loss account for reporting period
(2) A balance sheet for the businesses at the end of the reporting period
(3) A cash flow statement for the reporting period
A balance sheet shows at a particular point in time what resources are owned by a businesses and what it owes to other parties. It also shows how much has been invested in the business and what the sources of that investment finance were.
It is often helpful to think of a balance sheet as a snap shot of the business a picture of the financial position of the business at a specific point. Whilst this is a useful picture to have, every time an accounting transaction takes place, the snap shot picture will have changed.
By contrast, the profit and loss account provides a perspective on a longer time period. If the balance sheet is a digital snap shot of the business, then think of the profit and loss account as the DVD of the business activities. The story of what financial transaction took place in a particular period and what the overall result of those transaction was. Not surprising, the profit and loss account measures profit.
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