The Basic Financial Statements and their definition

Philippine Accounting Standards (PAS) No. 1 mentions basic financial statements as follows:

• Statement of Financial Position

• Income Statement

• Statement of Changes in Equity

• Cash Flow Statement

• Notes to Financial Statements

• Full-disclosure Principle

IFRS refers the above as a complete set of financial statements.

Statement of Financial Position

Statement of Financial Position (SFP) is formerly known as Balance Sheet. 

SFP shows the financial condition or position of the organization at any given time.  

The elements of Statement Financial Position comprises assets, liabilities and owner’s equity.

Income Statement

Results of operating the business during a given time are reflected in the Income Statement.  

The elements of Income Statement are Revenues and Expenses.

Statement of Changes in Equity

Statement of Changes in Equity shows movements of owner's capital for a particular period. 

The following comprise Statement of Changes in Equity:

• Owner's investments (capital) to the organization    
• Profit or Loss for the period
• Owner's personal withdrawals
• Prior Period Adjustments 

Cash Flow Statement

Cash Flow Statement reflects the financing and investing activities of the business or the sources and applications of funds during the period. 

It also shows the changes of cash and cash equivalents during the period. Note that cash equivalents are those short-term, highly liquid investments which are easily convertible to cash.   

This statement lists all the cash inflows and outflows, and classifies them as cash flows from the following:

• Operating Activities - Cash inflows and outflows from normal operating activities of the entity.

• Investing Activities - Cash inflows and outflows from the sale or purchase of assets other than inventory.

• Financing Activities - Cash inflows and outflows from the owners and creditors of the organization.

Notes to Financial Statements

Notes to Financial Statements are supplied to achieve proper understanding of the financial statements. 

Notes to Financial Statements are placed on the face of the Financial Statements in the form of parenthetical disclosure. Or, as notes to financial statements which are shown in a different accounting report. 

Full Disclosure Principle

The full-disclosure principle means that the financial reports must include any information that could affect the decisions to be made by external users...read more 

The end-products of financial accounting processes are the financial statements.  The preparation of financial statements is the reason why a business organization must maintain bookkeeping or accounting systems.

Financial Statements cannot be done without the groundworks of bookkeeping because the financial data starts with analyzing, classifying and recording of business transactions.

Financial Statements particularly audited ones are the basis of Government Agencies and Bureaus when examining the financial records of the company.

Periodically, Government Agencies and Bureaus require businesses to submit, pay and file taxes and dues on or before the set deadlines. The basis of the figures to be filed are the financial statements prepared monthly.