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The 3 Common Types Of Statements Used In Financial Reporting

Choosing Online Accounting Services In Virginia, USA? Here’s The Financial Statements They Give You

Hiring online accounting services has become more popular in the last year in Virginia, USA, and across the country. If you’ve opted for one and are confused about their financial reporting, read on. We explain the 3 financial statements they deliver for your business.

But first, what’s a financial statement?

A financial statement shows you your business’s real performance in the past financial year and where your business stands at the end of it. Every business needs to have financial statements, be it a not-for-profit or for-profit. These statements can be used by bankers, shareholders, stakeholders, and financial intermediaries to analyze your business.

How many types of financial statements are there?

Broadly there are 3 – balance sheets, income statements, and cash flow statements. But some experts believe the following should also be part of financial statements:

  • Statement of stockholder’s equity.
  • Explanatory notes in annual reports
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Understanding Balance Sheets As Part Of Financial Reporting

Virtual accountant explaining the financial reporting statements citing various charts.

The first statement in the financial reporting of any business in Virginia, USA, or beyond is a balance sheet. It is a tabular sheet that balances your:

  • Assets: these include all your current assets along with property, equipment, and plants.
  • Liabilities: These are further divided into current and long-term liabilities.
  • Equity: These include common stock, preferred stock, and retained earnings, and each is shown separately in the balance sheet.

Since the balance of business changes from day to day, a balance sheet is always presented on a set day. For annual financial reporting, this date is the last day of a financial year, i.e., 31st December.

The balance sheet not only shows the balance of the last financial year but also the one previous to it. This helps in visual comparison. So, let’s say your 2020 balance sheet has 11 million equity at the year-end and a 10 million equity at the end of 2019. You can then clearly see the change in equity balance is by 1 million.

Understanding Income Statement And Cash Flow Statement

An income statement is for a specific period and not a set date. It shows the income of your business for that particular period. The statement contains the following:

  • net sales
  • operating cost
  • depreciation and amortization
  • interest cost
  • taxes
  • preferred dividends
  • net income

To arrive at the net income, you subtract all the components from the net sales. As you deduct each type of cost, you get a different picture of your income, which is expressed as:

  • Earnings before Interest Tax Depreciation and Amortization (EBITDA)
  • Earnings before Interest and Taxes (EBIT)
  • Net Income before Preferred Dividends

For a business, cash generation is more important than income reported in the financial statements. This is because your real source of value is always cash and not the income listed in the financial reports. That’s why a cash flow statement is essential to every organization.

The cash flow statement shows the generation of cash by the business and where you used it. The usage is categorized into 3 different activities:

  • Operating activities
  • Investing activities
  • Financing activities.

These were the 3 statements an online accounting service provider will create for your financial reporting. Each has its own value and necessity and can help you understand your business's financial position better.

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