Role of key financial statement and their elements

Financial statement elements

• Assets
• Liabilities
• Owner’s equity
• Revenue
• Expenses

Accounts

• Specific records within each element where specific transaction are entered.

Contra accounts

• For entries that offset other accounts

Income statement (profit and loss statement)

• Report the financial performance of the firm
• Describe how the assets and liabilities were utilized in the stated accounting period.
  

Elements

• Revenues
• Expenses
• Gains and losses

The income statement is divided into two parts:
Operating section

• Discloses information about revenues and expenses that are a direct result of the regular business operations.

Non-operating section

• Disclose revenue and expense information about activities that are not tied directly to a company's regular operations.

Balance sheet
Summarize a company's assets, liabilities and shareholders' equity

Elements:

• Assets - economic benefits controlled by the company Liabilities – debts or obligations settled over time through the transfer of economic benefits.
• Owners’ equity – residual interest in the assets after deducting the liabilities

The balance sheet must follow the following formula:

Assets = Liabilities + Shareholders' Equity

Cash flow statement

• Explain cash inflows and outflows
• Reveal the amount of cash the company has on hand

Classification:

• Operating cash flows: invovle in normal business of the firms
• Investing cash flows: result from acquisition or sales of property, plant, equipment and purchase or sale of investments in other firms
• Financing cash flows: result from issuance or retirement of debts and equity securities and dividend paid to stockholders.

Statement of changes in owners’ equity
Repot the amount and source of changes in equity investor's investment in the firm

The components that comprise the contributed capital part of stockholders’ equity:

• Contributed Capital - total legal capital of the corporation (par value of preferred and common stock) plus the paid-in capital.
• Par value –a value of preferred and common stock that is arbitral (artificial); it is set by management on a per share basis. This artificial value has no relation or impact on the market value of the shares.
• Legal capital of the corporation – par value per share multiplied by the total number of shares issued.
• Additional paid-in capital (paid-in capital) – This is the difference between the actual value the company sold the shares for and their par value.