Profit and Loss Statement

A profit and loss statement are also known as an income statement and is one of the fundamental financial reports of a business. The profit and loss statement is a summary of all the activities of the business during a specific period, including the income from sales of assets and the income from the sale of assets. Under this section, separate items such as income from investment, selling, buying, and financing can be shown. For instance, if the business earns rental income, the income from capital investments would be recorded under the category of operating leases. The balance sheet is used for the purpose of assessing the net worth of the business and to make a decision about its future allocation.

The statement of cash flows shows the changes in the balance sheet and the net sales and total inventory balances over a period of time. Cash flows are shown as the effect of a change in the balance sheet (or net sales less purchase price) and inventory (the sum of current and long-term capitalized costs less current assets). The statement of cash flows also represents the effect of changes in the intercompany market price for goods sold, including changes that result from stock price fluctuations between the parent company and its subsidiary, and changes in the mix of assets and liabilities.

All the financial statements must be prepared in accordance with generally accepted accounting principles (GAAP). An accountant has to prepare and maintain all the financial reports required by the U.S. Securities and Exchange Commission (SEC) for the reporting of U.S. Federal accounts.

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