There are three main financial statements that help businesses to keep financial information organized. These include—balance sheet, income statement, and statement of cash flow. These financial statements help businesses to establish their true financial position and decision making.

Income Statement

Also known as a profit and loss statement, an income statement shows the financial performance of an entity for a specific period of time. It comprises of the following elements:

– Sales- The value of what an entity sold during a given period
– Cost of goods sold – The cost used to create a product or service sold
– Gross profit- Total sales of an entity minus the cost of goods sold
– Expenses –The cost incurred by a business over a specific period of time
– Net income- Calculated as total revenue from sales minus all expenses

Balance Sheet

Also known as a statement of financial position, the balance sheet reveals the financial position of an organization as of the report date. Basically, it shows what an entity owns and how much it owes, as well as its overall worth. A balance sheet is comprised of the following elements—assets, liabilities, and equity. It lists assets on the left side, while liabilities and equity are listed on the right side. A business’s assets have to equal the sum of liabilities and equity. According to the balance sheet equation:

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