General Purpose Financial Statements

What is General Purpose Financial Sttements?

General-purpose financial statements are the financial statements that are issued by the management at regular intervals, usually, monthly, quarterly, semi-annual, and annual basis. Such statements help investors and creditors interpret the business and financial condition of the company so that they can take informed investment decisions.

General Purpose Financial Statements

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Source: General Purpose Financial Statements (wallstreetmojo.com)

Types of General Purpose Financial Statements

Below are the types of general-purpose financial statements, i.e. cash flow statementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more, income statementIncome StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more, balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more, statement of owners equityStatement Of Owners EquityA statement of owner's equity is a financial statement that shows how the entity's shareholder's capital has changed over time (reflecting additions and subtractions of equity due to business transactions). When a corporation generates a profit, it raises the owner's equity; when it makes a loss, it depletes the owner's equity.read more or retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more.

#1 – Cash Flow Statement

Format of cash flow statement given below:

  • + / – Operating cash inflows
  • + / – Investing cash inflows
  • + / – Financing cash inflows

Change in cash flows

  • + opening cash balance
  • = closing Cash balance

Example:

Cash Flow Statement Example

#2 – Income Statement

Basic income statement equation is:

Net Incomes = Revenue – Expenses

Example:

Income Statement Example-1

#3 – Balance Sheet

The Balance Sheet indicates at a given point of time how a company effectively used its resources. It shows all assets and liabilities at the given point of time.

An accounting equationAccounting EquationAccounting Equation is the primary accounting principle stating that a business's total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. read more in the balance sheet is given below:

Assets = Liabilities + Shareholders Equity

Example:

Balance Sheet Example -1

#4 – Statement of Shareholder Equity or Statement of Retained Earnings

The statement of shareholder equity indicates how the shareholders’ ownership in the business, known as shareholder equity or stockholder equity, increased or decreased from the beginning to the end of the given accounting period. As per US GAAP, official term to be used for this statements is a statement of shareholder equity

The statement of shareholder equity equationShareholder Equity EquationShareholder's equity can be calculated by deducting the total liabilities from the total assets of the company. It is a business's net value, or the amount that shareholders can claim if the company is liquidated and its debts are repaid.read more is:

Beginning Shareholder Equity + Additions to Shareholder Equity – Deductions from Shareholders Equity = Ending Shareholders Equity

Advantages

Disadvantages

  • Market Demand Fluctuations – Company product demand may frequently vary according to market conditions. By this irregular market fluctuations, sales will have a direct impact. During inflations, sales will have an adverse effect.
  • A One-Time Analysis – Financial statements show how company performance at a single point in time. So we cannot compare whether it is doing well or not as compared to earlier years. But we can analyze the financial position over a period of time but not exactly during a short period of time.

This has been a guide to What is General Purpose Financial Statements. Here we discuss the types of General-purpose financial statements, objectives along with examples, advantages, and disadvantages. You can learn more about from the following articles –

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