{"id":2429,"date":"2019-09-12T13:33:00","date_gmt":"2019-09-12T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2429"},"modified":"2026-01-24T18:01:26","modified_gmt":"2026-01-24T18:01:26","slug":"statements","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/statements\/","title":{"rendered":"Financial Statements"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Evaluating a Company\u2019s Sources and Uses of Cash\",\n    \"text\": \"A company\u2019s sources and uses of cash can best be evaluated using the:\\n\\nA. Statement of cash flows.\\n\\nB. Statement of changes in equity.\\n\\nC. Statement of comprehensive income.\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Statement of cash flows.\",\n      \"explanation\": \"The statement of cash flows discloses a company\u2019s sources and uses of cash by classifying cash inflows and outflows into operating, investing, and financing activities.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/TEUq4EDZCmA\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>The statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows represent a complete set of financial statements. These statements can be used in financial statement analysis to evaluate a company\u2019s performance and financial position.<\/p>\n<p>Financial statements summarize a company\u2019s accounting information. These statements may be audited by independent, external auditors who then provide an opinion on whether or not the financial statements give a fair representation of the company\u2019s performance and financial position under the accounting standards and principles.<\/p>\n<h2><strong>The Statement of Financial Position<\/strong><\/h2>\n<p>The statement of financial position is also referred to as the balance sheet or statement of financial condition. It gives a snapshot of a company\u2019s financial position at a particular point in time. It discloses (i) the resources that a company has control over (its assets); (ii) a company\u2019s obligations to its lenders and other creditors (its liabilities); and (iii) the excess of a company\u2019s assets over its liabilities (its owner\u2019s equity, shareholder\u2019s equity, or owner\u2019s residual interest in the company\u2019s assets after deducting its liabilities).<\/p>\n<p>The accounting equation, otherwise referred to as the balance sheet equation, expresses the relationship among the three components of the statement of financial position in the following form:<\/p>\n<p>$$ \\text{Assets} =\\text {Liabilities} + \\text{Owner\u2019s equity} $$<\/p>\n<p>The accounting equation must balance \u2013 a company\u2019s total assets must at all times equal the sum of its liabilities and owner\u2019s equity.<\/p>\n<h2><strong>The Statement of Comprehensive Income<\/strong><\/h2>\n<p>The statement of comprehensive income can be presented as a single statement of comprehensive income. Alterantively, it can be presented as two statements: an income statement and a statement of comprehensive income. In this instance, the statement commences with the profit or loss figure that is derived from the income statement and then presents components of other comprehensive income.<\/p>\n<p>The income statement is also known as the statement of operations or profit and loss (P&amp;L) statement. It provides information on the financial results of a company\u2019s business operations over a specified period of time. Income statement shows the amount of revenue a company generated, how much expense it incurred, and how much profit or loss it made over the period of time.<\/p>\n<p>The net profit or net income is also referred to as the bottom line or the income statement. It may be represented by the following equation:<\/p>\n<p>$$ \\text{Net income} = \\text{Revenue} + \\text{Other income} \u2013<br \/>\n\\text{Expenses} $$<\/p>\n<p>Comprehensive income includes all items that can impact shareholder\u2019s equity but do not result from transactions with shareholders. Some of these items are included in net income computation, while others are included as other comprehensive income.<\/p>\n<h2><strong>The Statement of Changes in Equity<\/strong><\/h2>\n<p>The statement of changes in equity is also referred to as the statement of changes in owners\u2019 equity or statement of changes in shareholders\u2019 equity. It provides information on the changes in owners\u2019 investments in a company over time. Its main components are paid-in capital, retained earnings, and reserves. It is organized to present a beginning balance, ending balance, and increase or decrease during the reporting period for each component.<\/p>\n<h2><strong>The Statement of Cash Flows <\/strong><\/h2>\n<p>The statement of cash flows or cash flow statement discloses a company\u2019s sources and uses of cash. It can assist in evaluating the company\u2019s liquidity and solvency position. It classifies all the cash flows of a company into operating, investing, or financing cash flows.<\/p>\n<p>Cash flows from operating activities include cash flows that arise from a company&#8217;s daily operations. Such cash flows determine net income. Cash flows from investing activities arise from activities that are associated with the acquisition and disposal of long-term assets, such as property and equipment. Cash flows from financing activities are derived from activities related to obtaining or repaying capital to be used in the company.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>A company\u2019s sources and uses of cash can best be evaluated using the:<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Statement of cash flows.<\/li>\n<li data-tadv-p=\"keep\">Statement of changes in equity.<\/li>\n<li data-tadv-p=\"keep\">Statement of comprehensive income.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>The statement of cash flows discloses a company\u2019s sources and uses of cash.<\/p><\/blockquote>","protected":false},"excerpt":{"rendered":"<p>The statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows represent a complete set of financial statements. These statements can be used in financial statement analysis to evaluate a company\u2019s performance&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-2429","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Financial Reporting Statements | AnalystPrep<\/title>\n<meta name=\"description\" content=\"Explore key financial statements: balance sheet, income statement, cash flow, and changes in equity. 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