Financial Statements

Final product of every process is something worth explaining, so is the case of the financial statements which are the final product of the whole complex process of financial information system. The term is basically referring to the five documents used for reporting the financial health of a specific organization in the contemporary business world. The set of those five documents is publicly referred to as the financial statements. This term is set out in the GAAP, American framework in relation to the preparation and presentation of those statements as well as IFRS, international framework for the presentation and preparation of the financial statements. Commonly, Financial Statements are referred to as the Financials.

Components of the Financial Statements

As already mentioned, financial statements is a set of five documents. Each document is referred to as the component of the financial statements. The five components are enlisted below:

·         Income Statement

·         Balance Sheet

·         Statement of Changes in Equity

·         Cash flow Statement

·         Notes to the Financial Statements

IFRS and New Nomenclature of the Financial Statements

Recently, IFRS, International Financial Reporting Standards, set out new names of the aforementioned statements keeping in consideration the function of the respective document. Balance sheet is renamed as the statement of the financial position. The rationale behind the new name is that it precisely and briefly describes the very purpose and function of the Balance sheet which is to express and report about the financial position at any specific point of time in relation to any business entity. Income statement is renamed as the Statement of comprehensive income and again the name is precisely and briefly reporting about the purpose of the statement that it documenting and reporting about the net income of the organization which is the difference of the organizational revenues and expenses. The name of the Statement of Changes in Equity is same. The statement of changes in equity reports about the wealth of the Owner that is invested in the Business and is referred to as the Equity. The statement presents the changes that have occurred between the opening and closing balances of the Equity and the nature of those changes that exactly sets the equity on rise and what cause it to fall.

Cash Flow statement is the last statement which is renamed to be the Statement of the Cash Flows. There do not seem to be any significant difference in the name apart from rearranging the words that do not have any purpose apart from making the name of the document similar to the names of the other statements. Cash flow statement precisely and briefly reports about the important asset of all the businesses in the present day business world and that is Cash. Business cannot always go for conducting business on credit as it will cause lag in the operations. This is why the operations on the small scale such as paying short-term liabilities, paying for the expenses require the cash. The statement presents the reconciliation between the opening and closing cash and what sort of changes that exactly set the cash to rise and what cause it to fall. Notes to the financial statements presents the descriptions and explanations in relation to the policies implemented regarding the finalization of the financial statements and the breakup of important figures that used to be presented on the face of the financial statements.