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When you first launch a company, many different aspects must be considered. Creating financial reports is one of those things. Being an entrepreneur is far more complicated than working for someone else, and it demands a certain level of experience and knowledge. Every entrepreneur must keep accounting records, and annual financial statements must be prepared using those records. 

The Canada Revenue Agency (CRA) can investigate a business at any moment by reviewing its accounting records and financial statements. A firm’s financial statements are the documents that convey the company’s business activities and financial performance.

They explain where the money for a corporation came from, where it was spent, and where it is currently located.

The required financial statements include a statement of profits and losses, a balance sheet, a statement of cash flows, and a statement of retained earnings. Each of these statements is a helpful tool trader can use to analyze a company’s financial strength. Additionally, they provide a rapid image of a firm’s financial health and the value that lies under the surface.

Income Statement 

An income statement is essential to a company’s financial statement. The income statement shows a company’s profit or loss for a certain period. An income statement shows a company’s quarterly or annual business results. 

Profitability and business-related financial results are the main goals. It can help determine the company’s sales growth across multiple reporting periods. The income statement shows investors how successfully management controls costs, which can boost profits. A company’s profitability is calculated by subtracting its expenses from its revenues.

The income statement includes the following sections:

  • Revenue

A company’s total income for a period is its total revenue. Sales of items, services, interest income, and so on make up this amount at the top of the Income Statement.

  • Gross Profit

Business gross profit is revenue minus the cost of products sold. The Income Statement’s central figure shows a company’s profit from sales.

  • Operating Expense

Business operations cost money. They include pay, rent, advertising, and equipment wear. The Income Statement’s bottom figure displays how much a business spends to make money.

  • Net Income

Net income closes the Income Statement. It shows how much money a company has made after all its costs have been considered. The Income Statement’s last number measures a company’s profitability.

 Balance Sheet

This is the second most important financial statement, giving information about the business’s liquidity. 

Balance sheets and other important financial statements, like income statements, can be used to do evaluations or figure out financial ratios.

It shows “what a company owns and owes at a fixed point in time.” This part of a company’s financial statement comprises several financial reporting accounts. Assets, liabilities, equity, and reserved earnings are the most important.

The balance sheet comprises of the following sections:

  • Noncurrent and Current Asset

Most of the time, assets can be put into two groups: those being used right now and those being kept for the long run. 

The first group is Current Assets, which includes cash, money owed by customers (Account Receivables), inventory, and other assets likely to be spent or quickly turned into cash during the next production cycle, sale, and payment. In this group are also things that are likely to be used up. 

Fixed assets, like land and buildings, and intangible assets, like intellectual property and long-term investments, are all examples of noncurrent assets.

  • Noncurrent and Current Liabilities

In the same way, the liabilities are split into current and non-current liabilities. Most of the money a business owes to its suppliers (in the form of accounts payable), its workers (in the form of wages payable), or the government (in the form of taxes payable) is included in its current liabilities. 

Non-current liabilities are mostly amounts owed to people who own the company’s long-term bonds. Net current assets, also called “working capital,” is the difference between total current assets and current obligations.

  • Equity

This is the difference between a company’s total assets and total liabilities. It is also called the owners’ equity. It shows how much money the company’s owners would get back if all its assets were sold and its debts were paid off. Retained earnings are the net profits not given to owners as dividends. They are a part of shareholders’ equity.

Statement of Cash Flow

A cash flow statement is a financial report showing how much money comes into and goes out of a business over a certain period. It tells potential buyers essential things about how a business is doing and how its finances are doing. Business leaders often use statements of cash flow to plan for problems like cash shortages.

The people who have a stake in a company look at the information in a cash flow report to determine how to use and divide the company’s resources to make the most money.

Working capital is the amount of cash a business has on hand at any given time to keep it going. The company’s decision-makers use the cash flow report to determine how to improve the working capital and keep the business going.

Cash flow resulting from three significant aspects of the business: 

  • Cash Flow from Operating Activities

The term “cash flow from operating activities” refers to the amount of money a firm brings in from its continuing, regular business activities, such as the production and sale of items or the provision of services to consumers.

  • Cash Flow from Investing Activities

It reports the amount of cash that has been generated or spent due to the multiple investment-related actions that have taken place during a particular period. Purchasing tangible assets, making investments in various securities, or selling securities or assets all fall under the category of investing activities.

  • Cash Flow from Financing Activities

It shows the financial flows, both positive and negative, that are used to fund the company. Transactions involving debt, stock, and dividends fall under the financing category. 

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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