In relation to the questions above, the four financial statements considered in answering the questions are (a) balance sheet, (b) income statement, (c) cash flow statement, and (d) statement of shareholder's equity. A balance sheet is a statement of the financial position of a company at the close of an accounting period. An income statement reports the financial performance of a company for an accounting period. A cash flow statement reports the cash position of the company at the end of an accounting period. The statement of shareholders' equity reports the equity position of a company at the end of an accounting period (Weygandt, Kimmel, & Kieso, 2007).
Expenses are matched against sales for an accounting period in the income statement. At a broad level, thus, the income statement reports the profit or loss performance of a company. At a more detailed level, the specific expenses and sales revenues are categorized to allow management to better assess performance. The profit or loss reported in the income statement, however, is linked to the statement of shareholder's equity, as the profit or loss is one factor applied in the determination of changes in shareholders' equity.
At a broad level, all collections and disbursements are reported in the cash flow statement. Together with the cash balance at the end of the preceding accounting period, the collections and disbursements permit the determination of the cash balance at the end of the current accounting period. The ending cash balance must be the same as the total of actual cash on hand and cash in banks. The ending cash balance, thus, is also a reporting component in the balance sheet.
The balance sheet provides a statement of current balances in all asset accounts and in all liability accounts. The difference between total asset values and total liabilities reflects the value of total shareholders' equity, which is also reported in the ba...