There are three basic financial statements that will tell us whether a company is making profit or not. They are:
- Balance Sheet – Balance Sheet is a legal requirement of every Company all over the world. It is a statement of financial position. On one side is Asset meaning whatever company has. on the opposite side are liabilities which is what the company owes.
- Profit & Loss Statement – Also known as expenses and income statement, the profit and loss statement lists incomes and expenses. It shows the latent position of business.Profit& Loss statement is always prepared for a specific period. In general it is prepared for one year and it reads Profit & Loss Statement for the year ending…..
- Cash-Flow Statement – Money comes in and goes out of the business at different times. A cash flow statement shows us how much cash is moving in and out of business over a certain period of time. A certain period of time may be a day, a week, a month or even three months. So cash flow statement reflects liquidity within the business.
- These three statements will tell us whether a company is making money or not.
- It will also tell us where and how a business is making money.
- It is a legal requirement to prepare Profit & Loss Statement and Balance Sheet at least once every year.