We, at Risley, CPA, provide financial statement preparation services for our clients for use by management and others closely related to the company.  These financial statements are neither compiled, reviewed or audited.  

The purpose of Financial Statements is to provide information about the financial position, performance and changes in financial position of a company that is useful in making economic decisions.  Financial Statements should be understandable, relevant, reliable and comparable.  

The basic Financial Statements of a company include the 1) Balance Sheet, 2) Income Statement, 3) Cash Flow Statement, and 4) Statement of Retained Earnings.

Balance Sheet (Statement of Financial Position)

The Balance Sheet presents the financial position of a company at a given date.  It is comprised of the following three elements:

• Assets:  Something a business owns or controls (i.g. cash, inventory, machinery & equipment, etc)
• Liabilities:  Something a business owes to someone (e.g. creditors, bank loans, etc)
• Equity:  What the business owes to its owners.  This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities.  Equity, therefore, represents the difference between the assets and liabilities.  

Income Statement (Profit & Loss Statement)

The Income Statement reports the company's financial performance in terms of net profit or loss over a specified period.  The Income Statement is composed of the following two elements:

• Income:  What the business has earned over a period (e.g. sales revenue, dividend income, etc)
• Expense:  The cost incurred by the business over a period (e.g. salaries and wages, operating expenses, depreciation, etc)

Net profit or loss is arrived by deducting expenses from income.

Cash Flow Statement

The Cash Flow Statement presents the movement in cash and bank balances over a period.  The movement in cash flows is classified into the following segments:

• Operating Activities:  Represents the cash flow from primary activities of a business
• Investing Activities:  Represents cash flow from the purchase and sale of assets other than inventories (e.g. purchase of large equipment)
• Financing Activities:  Represents cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends.

Statement of Changes in Equity (Statement of Retained Earnings) 

The Statement of Changes in Equity details the movement in owners' equity over a period of time.  The movement in owners' equity is derived from the following components:

• Net profit or loss during the period as reported in the Income Statement
• Share capital issued or repaid during the period
• Dividend payments
• Gains or losses recognized directly in equity (e.g. revaluation surpluses)
• Effects of a change in accounting policy or correction of accounting error