FARLesson 5 of 5

Financial Statements

Concept

The Four Financial Statements

The four main financial statements are: Income Statement (revenues minus expenses = net income), Statement of Owner's Equity (how equity changed during the period), Balance Sheet (assets = liabilities + equity at a point in time), and Statement of Cash Flows (where cash came from and went).
Example

Preparation Order Matters

You must prepare them in order: (1) Income Statement first to calculate net income, (2) Statement of Owner's Equity uses net income, (3) Balance Sheet uses ending equity from step 2, (4) Statement of Cash Flows uses data from all three.
Key Point

The balance sheet is the only statement that reports a snapshot at a single point in time. The other three cover a period of time (month, quarter, year).
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