Simple Financial Statements and their Functions

Simple financial statements include the following

Balance sheet - this reflects the value of the business. In the balance sheet we find assets, liabilities and the capital invested. The simple equation for balance sheet is Assets = Liabilities + Capital.

Income statement - is also known as the statement of profit and loss. It reflects the financial status of the company whether it is incurring profits or losses. In the income statement sales is deducted with cost of sales to get net income before other income. Other income such as bank interests is then added to get the net income before tax.

Statement of Retained Earnings - this explains the changes in the company’s retained earnings for the period. It reflects the profits or losses incurred, dividends paid and the amount retained for future use.