Financial Statement Examples Step By Step Explanation

Financial Statement Examples

The following financial Statement example provides an outline of the most common Financial Statements. It is impossible to provide a complete set of examples that address every variation in every situation since there are thousands of such companies. Each example of the financial statement states the topic, the relevant reasons, and additional comments as needed.

There are three major financial statements:

Balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read moreIncome StatementIncome StatementThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read moreCash flow statementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more

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#1 Balance Sheet Example

The balance sheet shows the assets, liabilities, and shareholder’s equity of the company in a particular format. Consider the example of Apple (consolidated balance sheet)

Source: Apple.Inc

Current Assets

Current AssetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more are the assets that convert into cash in less than one year. The assets of the Company include:

Cash and Cash EquivalentsCash And Cash EquivalentsCash and Cash Equivalents are assets that are short-term and highly liquid investments that can be readily converted into cash and have a low risk of price fluctuation. Cash and paper money, US Treasury bills, undeposited receipts, and Money Market funds are its examples. They are normally found as a line item on the top of the balance sheet asset. read more: These are the cash deposits of the company in the bank account or invested in securities that convert into cash in 1-2 days.Marketable SecuritiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company’s balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more: They are highly liquid securities and can easily convert to cash.Account ReceivablesAccount ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
read more: Accounts Receivables are the amount the company will receive from its customers and expects to receive in less than one year.Inventories: Inventories are finished goods, raw materials, and goods in progress held with the Company.Vendor Non-Trade Receivable: Vendor non-trade receivables include the non-trade items of the company with its vendors, and it expects to receive them in less than one year.Other Current Assets:Other Current Assets:Other current assets refer to the category of assets which record all the uncommon and insignificant assets readily convertible into cash and doesn’t fit in any common current assets categories like cash & cash equivalents, inventory, trade receivables, etc.read more Other current assets include assets that cannot add up in the above buckets. Hence, they list as other current assets.

Non-Current Assets

Non-Current AssetsNon-Current AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company’s investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more are long term assets of the company which it expects to convert into cash in more than one year:

Marketable securities under non-current assets are an investment by the company in exchange-traded securities, which it expects to mature after one year.Property, plant, and equipment, as the name suggests, are the investments of the company in the property for building offices, factories, manufacturing hubs or warehousing, and equipment used to manufacture the products of the company.Other non-current assets are the non-current assets of the company, which cannot be segregated under above mentioned non-current assets.

Current Liabilities

Current Liabilities of the CompanyCurrent Liabilities Of The CompanyCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They’re usually salaries payable, expense payable, short term loans etc.read more are the liabilities it owes to the vendors, banks, investors of commercial paper, etc. These liabilities will mature in less than one year.

Accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more include the payment to be made by the company in the next year. These payments may be to the vendors or suppliers for sourcing raw material and other services.Deferred revenueDeferred RevenueDeferred Revenue, also known as Unearned Income, is the advance payment that a Company receives for goods or services that are to be provided in the future. The examples include subscription services & advance premium received by the Insurance Companies for prepaid Insurance policies etc. read more records when the company has accepted the payment, but the goods and services are not yet provided to its customers.Commercial paperCommercial PaperCommercial Paper is a money market instrument that is used to obtain short-term funding and is often issued by investment-grade banks and corporations in the form of a promissory note.read more is a debt security issued by the company to raise money from the public.Term debt is a loan to be repaid to banks and financial institutions.Other current liabilities include liabilities of the company, which don’t feature in any of the above liabilities.

Non-Current Liabilities

Non-Current LiabilitiesNon-Current LiabilitiesThe most common examples of Non-Current Liabilities are debentures, bond payables, deferred tax liabilities etc. Non-Current Liabilities are the payables or obligations of an entity which might not be settled within twelve months of accounting such transactions. read more are the liabilities that the company is liable to pay in more than one year.

Deferred revenue in non-current liability is the same as under current liabilities, but the company will provide goods and services after one year.Term debt is a long-term loan taken by the company from banks and financial institutions.

Shareholders Equity

Shareholders EquityShareholders EquityShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders’ Equity Statement on the balance sheet details the change in the value of shareholder’s equity from the beginning to the end of an accounting period.read more includes the initial amount invested by the company’s shareholders and retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more, i.e., the amount earned by the company over the years of its operations.

#2 Income Statement Example

The second financial statement is that of the Income Statement. It gives details about the financial performance of the company over some time. It provides income and profit earned by the company. Consider the below snapshot of the statement of operationsStatement Of OperationsStatement of Operations, also known as the income statement, displays a Company’s revenues & expenditures for a specified period, i.e., monthly, quarterly, or annually in a standard accounting format in accordance with the accounting policies suggested by the governing body.read more for Apple Inc.

Source: Apple Inc

Net SalesNet SalesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company’s gross sales.read more are the company’s sales from the goods sold by it during the year.Cost of salesCost Of SalesThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.
read more is the cost incurred by the company for manufacturing and its sales.The gross margin is net sales minus the cost of salesCost Of SalesThe costs directly attributable to the production of the goods that are sold in the firm or organization are referred to as the cost of sales.read more.Research and development expenses are the expenses incurred by the company for research and development purposes.Selling, general and administrative expensesSelling, General And Administrative ExpensesSelling, general and administrative (SG&A) expense includes all the expenses incurred in the selling of the products of the company whether direct or indirect along with the entire general and the administrative expenses during an accounting period under consideration such as advertisement expenses, sales promotion expenses, marketing salaries, etc.read more include marketing and sales expense, other expensesOther ExpensesOther expenses comprise all the non-operating costs incurred for the supporting business operations. Such payments like rent, insurance and taxes have no direct connection with the mainstream business activities.read more like office supplies, and other administrative expenses required for running the operations of the Company.Other income is from selling some investment or interest earned on bank deposits, etc. The company earns during the period the income statement generates.Provision for income taxesProvision For Income TaxesProvision for Income Tax is the estimated income tax for current year and is the amount that the entity might have to deposit to settle their tax liabilities. It is adjusted for the expenses allowed to be deducted according the relevant tax laws.read more is the tax paid by the company to the government for income generated.Net income is the profit earned by the company. It is calculated by subtracting all the expenses, taxes from the sales amount, and other income.

#3 Statement of Cash Flow Example

The cash flow statement includes the cash inflows or outflows by the company during the period.

It includes three types of cash flows:

Cash flow from operating activitiesCash Flow From Operating ActivitiesCash flow from Operations is the first of the three parts of the cash flow statement that shows the cash inflows and outflows from core operating business in an accounting year. Operating Activities includes cash received from Sales, cash expenses paid for direct costs as well as payment is done for funding working capital.read more: This includes various items from which there is cash inflow or outflow due to the company’s operating activities.Cash flow from Investing activitiesCash Flow From Investing ActivitiesCash flow from investing activities refer to the money acquired or spent on the purchase or disposal of the fixed assets (both tangible and intangible) for the business purpose. For instance, the purchase of land and joint venture investment is cash outflow, while equipment sale is a cash inflow.read more: It includes cash inflow or outflow due to company investments. If the company makes a new investment, it will pay some amount and is recorded as a cash outflow. If it sells its investments or some investment securities mature, it will receive cash and is recorded as a cash inflow.Cash flow from financing activities: It includes cash inflow or outflow from financing activities like issuance of stocksIssuance Of StocksShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner’s equity on the Company’s balance sheet.read more, dividend payments, buyback of stocksBuyback Of StocksShare buyback refers to the repurchase of the company’s own outstanding shares from the open market using the accumulated funds of the company to decrease the outstanding shares in the company’s balance sheet. This is done either to increase the value of the existing shares or to prevent various shareholders from controlling the company.read more, payment of term debt or issuing commercial paper, etc.

Conclusion

The companies’ financial statements are a bit complex, and they are interlinked with amounts on financial statements reflected in another statement in a different form. Hence, while analyzing the company’s performance, all the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more should be read and analyzed together. These statements reflect the various business activities of the company.