Balance Sheet, Income and Cash Flow Statements, Shareholders

Financial Statements
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IMPORTANCE OF FINANCIAL STATEMENTS
Introduction
Money in the bank does not necessarily mean your business is making profit and therefore it is of great importance to prepare financial statements in order to get the real and fair facts about the business. Financial statements are the tools by which any business measures their value as well as their performance. The main financial statements that are prepared by any business are the Balance Sheet, Income Statement, and Statement of cash flow (Financial Statements, 2012, p.780). These statements are generally important since they indicate the various transactions while ensuring that they do not affect performance.
The Financial Statements
Balance Sheet
This is a document that is put together to indicate the assets, liabilities and shareholder’s equity of a business at a given time. The three segments show what the business owns, owes as well as the amount invested in the business. The balance sheet is also known as the statement of financial position as it reflects the financial position of a business as per the period involved.
Some of the assets in the balance sheet include but are not limited to Cash, Accounts receivables, Equipment and machine, Business premises and Motor vehicles. Some of the liabilities in the balance sheet include factors like, accounts payable, accruals, and accumulated depreciation. Accounting principles such as Prudence concept and Relevance concept make sure that the real or true view of assets as well as liabilities is reflected in the balance sheet as per the period they are prepared. Therefore, it is essential to prepare the Statement of financial position as this information is of great importance to various parties who rely on it to make important decisions relating to the business.
Income Statement
The income Statement is a document prepared by a business to show the performance of the entity as per the period it is prepared. It shows the revenue earned as well as the expenses the business incurred during a specific fiscal year. The importance of this is to show if the business made a profit or a loss. It is also known as the Profit and Loss statement or Statement of Revenue and Expenses. It is therefore important to prepare Income Statements for a specific fiscal period in order to show the profitability of the business (Ding, Jeanjean, and Stolowy, n.d, p.94).
Revenues in the income statement are mainly generated from the sales of the business as well as other incomes obtained by the business in its trading activities.
Expenses incurred by the business in its operating and non-operating activities need to be shown and reflected in the Profit and Loss statement. This helps the business to find out what segments need more financing as well as rationing in order to cut unnecessary costs. The information is used by management as a control tool.
The information in the Income Statement is also used by other parties interested in the business. They include the government for tax purposes, suppliers as well as vendors and other parties.
Cash Flow Statement
This is a document prepared by a business to reconcil...