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A financial statement is a formal record of the financial

activities of a business, person, or other entity.

In financial statements all the relevant financial

information are presented in a specific manner and in a form easy to understand.

Accountants prepare financial statements, they are

describing in financial terms certain attributes of the enterprise they believe fairly present its financial activities.

Interested parties:
Financial statements are necessary sources of

information about companies for a wide variety of users.

Those who use financial statement information include

company management teams, investors, creditors, governmental oversight agencies and the Internal Revenue Service.

Primary users:
The investors an creditors are particularly

interested in cash flow that might receive.

Creditors: creditors are interested in the ability of a

company to meet its payment obligations which may also include the payment of interest.

Investors: Investors are interested in the market value of the companys stock holdings as well as the company will pay while they own the


One of the primary ways that investors and creditors will know the probability that a company will be able to make these cash payments is to study, analyze and understand the enterprises financial statements.

Time is an important factor in preparing and understanding the financial statements. Annual financial statements :
It include financial statements for one year.

Short term or Interim financial statements :

For periods of time shorter than a year for example a month, three months or six months .

Four primary financial statements:

Statement of financial position (balance sheet) Income statement

Statement of owners equity Statement of cash flows.

Statement of financial position (BALANCE SHEET)

The starting point for understanding financial statements is the balance sheet.


The Balance Sheet is a statement detailing what a company owns (assets) and claims against the company (liabilities and owners' equity) on a particular date.
It shows the financial position of any company. It tells us that where the company stands, in financial terms, a specific date.

The balance sheet is based on the accounting equation.

Assets = liabilities + owners equity

The heading should contain three things. The name of the business . The name of financial statement .

The date.


The assets
liabilities owners equity

Sample balance sheet

Ali enterprises Balance sheet 31 December, 2010

Assets Liabilities & owner equity

Cash ----------------------------$ 2000 Notes payable-----------------$ 4500 Accounts receivable ---------- 1660 Accounts payable ------------ 4000 Supplies ------------------------ 3000 Salaries payable -------------- 2500 Land ---------------------------- 30000 Interest payable --------------- 1500 Building ----------------------- 45000 Total liabilities -----------$ 12500 Equipment --------------------- 4500 Owners equity: Furniture ---------------------- 5000 Alis capital ----------- $133600 Vehicles ----------------------- 40000 Total ----------------------- $ 146100 Total -------------------------- $ 146100