Financial Statement is defined as a formal record where financial activities are available in an organization as they quantify financial strength, performance as well as availability of company liquidity. There are basically four types of financial statements such as statement of financial position, income statement, cash flow statement and statement of changes in equity(accounting-simplified, 2015). The following has been described below as:

Statement of Financial Position- the combined statement of financial position or balance sheet shows the company transaction. Income statement- can be called as Profit and Loss Statement since it reports the company’s financial statements such that there is enough room for the profit and loss to be specified over an estimated time period. Cash flow statement- this mainly represents the movement of cash and bank balances over an estimated period of time. Statements of Equity- there is also a mention of statement of changes in equity so that details in their owner’s equity over a period and there are components such as net profit or loss as reported in income statement, share capital issued during tenure, dividend payments, gains or losses and also effecting change in accounting policy(Financemaps, n.d.).

Understanding  the financial statements

Assets and liabilities are also well classified into proper computation of ratios such as there is current assets, limited use assets, property, plant and equipment and also there are other articles present as well which can be amortized or even the expenses can be handled accordingly in the statement of financial position. Income statement comprise of both income also known as revenue which is the value of services as provided and cash collected from the borrowers of money and expenses are defined as consumption of resources involving depreciation. Cash flow statement mainly comprises of three segments such as operating activities that include cash spent on primary business activities, investing activities where cash flows from purchase and sale of activities except that of inventories and there is financing activities too that can generate cash flow and showcase debt along with payments of interest and dividends.