Essential Financial Statements and Accounting Terms
Classified in Economy
Written on in 
English with a size of 3.55 KB
Understanding Key Financial Concepts
Core Financial Statements Defined
Financial Statement
A financial statement is a report prepared to summarize the changes resulting from business transactions that occur during an accounting period.
Income Statement
An Income Statement is a report of the net income or net loss for a specific period.
Statement of Changes in Owner's Equity
The Statement of Changes in Owner's Equity is a financial statement that summarizes changes in the owner’s capital account as a result of business transactions during the period.
Balance Sheet
A Balance Sheet is a report of the balances in the permanent accounts on a specific date.
Report Form (Balance Sheet Format)
The Report Form is a balance sheet format that lists classifications one under another.
Statement of Cash Flows
The Statement of Cash Flows is a financial statement that summarizes cash receipts and cash payments resulting from business activities during a period.
Financial Ratio Analysis
Ratio Analysis
Ratio Analysis is the process of evaluating the relationship between various amounts in financial statements.
Profitability Ratio
A Profitability Ratio is a ratio used to evaluate the earnings performance of a business during the accounting period.
Return on Sales
Return on Sales is a ratio that examines the portion of each sales dollar that represents profit.
Key Financial Metrics & Liquidity
Current Assets
Current Assets are assets that are either used up or converted to cash during the normal operating cycle of the business.
Current Liabilities
Current Liabilities are the debts of the business that must be paid within the next accounting period.
Working Capital
Working Capital is the amount by which current assets exceed current liabilities.
Liquidity Ratio
A Liquidity Ratio measures a business's ability to pay its current debts as they become due and to provide for unexpected needs of cash.
Current Ratio
The Current Ratio is the relationship between current assets and current liabilities, calculated by dividing current assets by current liabilities.
Quick Ratio
The Quick Ratio is a measure of the relationship between short-term assets and current liabilities, calculated by dividing the total cash and receivables by the current liabilities.
Common Questions on Financial Statements
Purpose of the Income Statement
The purpose of the Income Statement is to provide information on the financial earnings performance of an entity over a specific period of time.
Purpose of the Statement of Changes in Owner's Equity
The Statement of Changes in Owner's Equity summarizes the changes in the owner's capital account over a reporting period, reflecting contributions, withdrawals, and net income/loss.
Purpose of the Balance Sheet
The purpose of the Balance Sheet is to give users an idea of the company’s financial position at a specific point in time.
Information from the Statement of Cash Flows
The Statement of Cash Flows provides information about cash receipts and cash payments resulting from operating, investing, and financing activities.