Explain the various financial statements like balance sheet, income statement, and statement of cash flow and owner’s equity with its advantages and disadvantages of preparing this statement with an example. INTRODUCTION Financial statements provide information of value to company officers and various external parties, such as investors and lenders of funds. Publicly owned companies are required to publish general-purpose financial statements that include a balance sheet, income statement, and statement of cash flows.
Intangible assets would be assets that are not physical but has valve in it such as copyrights, patents and goodwill. The right side of the balance sheet is called equity and liabilities side, presenting the amount of figure of liabilities. Similarly to the asset side, it has current and long term liabilities. Shareholders’ equity is the initial amount of money invested into a business by the shareholders or partners. The advantage of reading a balance sheet is that it presents the immediate financial position of the business by showing assets and liabilities of the concern on a specific date.
In comparing past balance sheets with the present balance sheet, the growth or decline of the business assets, loans and net worth can be determined instantly. It discloses the solvency of business by showing how much assets are available for payment of liabilities. However, Balance sheet does not give accurate picture on real time basis since outdated valued of assets is used, the use of estimate of value and omission of intelligence like the model and business of the company depended on its success whether on its fixed assets or its human resources.