financial statements

What are financial statements?

Financial statements, also called accounting statements, are reports used by accounting to have a record of economic and financial activities that have been done over a specified period of time.

These financial statements are used by owners, partners and creditors, who want to know exactly how their company is performing, to be aware of their financial situation.

Characteristics of the financial statements

The main characteristics of the financial statements are the following:

• The information collected to calculate a financial statement may vary according to the patrimonial situation, the results, the evolution of the net worth, the cash flow, among others.
• The financial statements not only focus on the present of the company, but also provide information about the past and future of the organization.
• The content of the financial statement must be understandable, both for an accounting expert and for the rest of the managers of a company.
• Your information must be completely truthful and reliable.
• Although a current financial statement takes into account the past and future of a company, can be considered provisional, since over time it ceases to be useful.
• In order to be accountable to the State, the financial statements of a company they must be completely legal and be registered by different inspection institutions.

Types of financial statements

There are various types of financial statements. These are detailed below.

Balance sheet

The balance sheet, also called the statement of financial position, reflects the overall financial situation of an organization for a specified period.

Statement of income

Also known as a profit and loss account, this financial statement exposes income and its relation to expenses and costs the organization has had, over a period of time.

This is used for know the earnings (profits) left to the organization, after recording all income and expenses.

Statements of changes in equity

In this financial statement All income and expenses that cause a variation in the assets of an organization are reflected, for a specified period of time.

Cash flow statements

The cash or cash flow statement shows the variations of money that an organization owns for a specified period of time. In short, it shows the income and expenses in cash of the organization.

Unlike the income statement, it does not focus on measuring the profit or loss of the organization in question, but rather the balance and how it is generated.

Fund movement statuses

The statement of movement of funds, also known as the statement of change in financial situation, shows the use that the organization has made of the money generated over a period of time.

This financial statement exposes where the money was obtained owned by the organization and what has been done with it.

Example of financial statements

To better understand the concept of financial statement, let's look at the following example:

Below is the andIncome statement of a computer consulting firm, corresponding to the year 2018:

In this financial statement you can see the income that the company has obtained for their services provided and, in turn, the cost you have had for the expenses necessary for the provision of services.