FINANCIAL STATEMENTS

The final products of accounting are financial statements. Financial statements are means of communicating important accounting information to users: Management, banks, State Administration, Tax Authorities, suppliers, customers, investors. They show the business in financial terms.

Four major financial statements are used to communicate accounting information about a business: the Income Statement, the Statement of Owner's Equity, the Balance Sheet, and the Statement of Cash Flow. The Income Statement, the Statement of Owner's Equity and the Statement of Cash Flow give the time period (month, quarter, year), but the Balance Sheet gives the specific date to which it applies – e.g. December 31.

The main financial statements are the Income Statement and the Balance Sheet.

The Income Statement shows financial position of a business over a definite period of time. It summarizes the revenues earned and expenses paid by a business over a period of time. Many people consider it the most important financial report because it shows whether a business received profit or lost money. So, its main formula is: Revenues – Expenses = Gross Profit or Loss. Gross profit is profit before taxes. In Great Britain this statement is called Profit and Loss Account.

The Balance Sheet shows the financial position of a business on a certain date, usually the end of the month or year. For this reason, it often is called the statement of financial position and is dated as of a certain date. The Balance Sheet presents the quantity (in money measure) of business's assets, liabilities and owner's equity (capital). The accounting equation of the Balance Sheet is: Assets = Owner's equity + Liabilities

It can be seen that the two sides of the equation will have the same totals. This is because we are dealing with the same thing from two different points of view. The actual assets, liabilities and capital may change, but the equality of assets with that of the total of capital and liabilities will always hold true.

Vocabulary:

financial statement – фінансовий звіт

Income Statement – звіт про прибутки і втрати (про фінансові результати)

Statement of Owner's Equity – звіт про власний капітал (кошти)

Balance Sheet – балансовий звіт

Statement of Cash Flow – звіт про рух готівки (грошових засобів)

revenue – прибуток

expenses – видатки, витрати

gross profit – валовий дохід

equation – рівняння

point of view – точка зору

Questions:

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