Financial Accounting revolves around
three main statements the income statement also known as profit and loss
or simply P&L the balance sheet and the cash flow statement each serves a
different purpose and contains important information about how a business is
running the income statement answers the question how did the company perform
throughout the period under consideration did it produce a profit or
a loss typically an income statement is prepared for a one-year period but
sometimes larger companies present it on a quarterly basis the P&L statement
helps us understand whether the operations of the firm created economic
value it also enables us to find important trends such as revenue growth
and incidents of gross profit on revenues the balance sheet answers the
questions what does a company oh and owned at a certain date what is the
company’s financial position it shows the assets that the business controls
the liabilities it owes and the equity that belongs to equity holders the
reason it is called a balance sheet is because total assets must equal
liabilities plus shareholders equity assets stand on the left side of the
balance sheet while liabilities and shareholders equity are on the right
side the statement of cash flows answers the question how much cash did the
company make during the period under consideration and where did it come from
given that income and cash generation are two different things we need a
statement that shows us the movements of cash providing an idea of the liquidity
generated by the firm’s operations you will find these statements in every
company’s annual report anyone who would like to get an idea about a business
should start here