Preparing Financial Statements

A financial statement is physical documentation of a business's finances. This statement is sent out to shareholders and potential shareholders if the company is publicly traded in order to inform them of the business's financial health. It consists of four parts: The balance sheet report, income statement, statement of cash flow and statement of shareholders' equity.

Balance Sheet Report

The balance sheet report provides a snapshot of information on three aspects of the business's finances: Their assets, liabilities and shareholders' equity. Assets are goods that hold value owned by the business, like heavy equipment, goods sold, and trademarks and patents. Liabilities are the business's debts, such as bank loans and rental payments. Shareholders' equity is the monetary difference between the liabilities and the assets.

Income Statement

The income statement shows the business's revenue during the time period being reported on. It includes the gross, or total revenue of the company before expenses, and it shows the business's expenses, subtracting these from the gross revenue to arrive at the net revenue. The net revenue is the actual revenue of the business after the cost of operation has been subtracted.

Statement of Cash Flow

The statement of cash flow contains information on the cash going in and out of the company from three aspects: Operating activities, investing activities and financing activities. Operating activities details money spent in order to run and operate the company and cash earned because of operating the company. Investing activities details cash spent investing in items like machinery and property and the cash return from the investments. Financing activities detail the paying off or taking out of loans.

Statement of Shareholders’ Equity

The statement of shareholders' equity details the equity per share or EPS. This is the amount of money each shareholder will be paid per share of the business they own. This is information useful to not only current investors, but it provides potential investors an idea of how much revenue they could potentially earn from buying shares of the business.