Financial Statements
The three essential reports that tell the complete story of a business
Three Ways to View Your Business
Think of financial statements as three different lenses for viewing the same business. Each one answers a different but equally important question about the company's health and performance.
Balance Sheet
Financial Position at a Point in Time
Shows what the company owns (assets) and owes (liabilities and equity) at a specific date.
Purpose & Overview
The Balance Sheet provides a snapshot of a company's financial position at a specific moment in time. It's like taking a photograph of all the company's assets, liabilities, and equity on a particular date.
💡 Example
If a company has $100,000 in assets, $30,000 in liabilities, then equity must be $70,000 to balance the equation.
Key Components
Assets
Listed in order of liquidity (how quickly they can be converted to cash)
- Current Assets: Cash, Accounts Receivable, Inventory
- Non-current Assets: Equipment, Buildings, Land
Liabilities
Listed in order of when they must be paid
- Current Liabilities: Accounts Payable, Short-term Loans
- Long-term Liabilities: Mortgages, Long-term Debt
Equity
Owner's residual interest in the company
- Owner's Capital
- Retained Earnings
- Additional Paid-in Capital
How the Statements Connect
Net Income Connection
Net income from the Income Statement flows to the Balance Sheet as retained earnings
Cash Balance Link
Ending cash from Cash Flow Statement appears as cash on the Balance Sheet
Complete Picture
Together, they provide a comprehensive view of financial health and performance
Ready to Learn the Rules?
Now that you understand what financial statements show, let's learn the rules that govern how transactions are recorded: debits and credits.
Next: Learn Debits & Credits