What are Financial Statements?
A business has to record all transactions of money going into and out of the business. These transactions form a numerical history of the business and are summarised in the financial statements. These statements show whether the business has made a profit or a loss and how much it is worth.
The two financial statements are:
- Profit and Loss Accounts
- Balance Sheets
Purpose of financial statements
- Keeps the business and other stakeholders informed about the businesses performance
- Identifies whether the business is making a profit or a loss
- Shows how much the business is worth
- Tracks the flow of cash into and out of the business
- Informs managers on the payment of suppliers and receipts from customers
- Helps inform future decisions
Profit and Loss Account
Shows a summary of a firm’s trading expenses in a given time period (normally a…