THE 3 KEY FINANCIAL STATEMENTS

1. BALANCE SHEET
- A snapshot of an entity’s assets, liabilities and shareholders’ equity at a
particular time. On this day, the company looked like this.

- ‘Assets’: current and non-current

• Examples of current assets include those which are easily convertible

into cash. For example cash in the bank, accounts receivable, inventory,
shares and financial instruments.

• Examples of non-current assets include those which cannot be easily

converted into cash. For example real estate, plant and equipment,
intellectual property and long-term loans (>12mths).
1. BALANCE SHEET
- ‘Liabilities’: current and non-current

• Examples of current liabilities include creditors (accounts payable),

current year taxes, tax liabilities, bank overdrafts, short-term loans and
leases (<12mths).

• Examples of non-current liabilities include debentures, bonds, deferred

taxes, long-term loans and leases (>12m).

- ‘Net assets’ refers to the sum of the total assets (current + non-current),
less, or minus, the sum of total liabilities (current + non-current)

- ‘Shareholders equity’ refers to the net sum of the issued capital,

retained earnings or losses and any reserves in the entity.
2. INCOME STATEMENT (profit and loss)

- The Income Statement is the measure and matching of income (money

coming in) and expenditure (money going out) incurred within a particular
period, which ends and coincides with the date of the relevant balance sheet.

- ‘Income’ refers to all money that enters an entity from, for example,
the sale of goods and/or services or interest received.

- ‘Cost of goods sold’ (COGS) refers to the net cost of producing

or purchasing any services and/or goods for resale.
2. INCOME STATEMENT (profit and loss)

- ‘Gross profit’ refers to income minus the COGS.

- ‘Expenses’ refers to the costs needed to pay for the administration and
operation of the business.

- ‘Net profit’ refers to gross profit minus any expenses the business has.

- ‘Loss’ occurs when the expenses exceed gross profit.

3. CASH FLOW STATEMENT

- The Cash Flow Statement is a projection of the health of the company

into the future.

- It shows the movement of cash in and out of an entity with respect to

operating, investing and financial activities.
It measures how well a company manages its cash position.

- Operating expenses include rent, wages, insurance and many other costs
associated with running a business.