I. Read the text and name the main financial statements.

After the analysis of the transactions is completed the results of this analysis are presented in financial statements.

Four key financial statements are the following: the balance sheet, the income statement, the statement of cash flows, and the statement of owner's equity.

Financial statements provide the link between accounting and the finance. An accountant’s work is pretty much done when he or she prepares and analyzes the financial statements. That is where finance begins. The accountant or finance person’s job is to analyze those statements and make recommendations to top management. Naturally, accountants and finance managers may work together to help to interpret the firm’s data and make recommendations. A financial statement is merely the summary of all transactions that have occurred over a particular period. Financial statements indicate the financial health of the firm. That is why they are of interest to stockholders (the owners of the firm); banks and bondholders (people who have loaned money to the firm); investors (people who may want to own part of the firm); unions; employees.

To understand accounting, you must be able to read and understand both the balance sheet and the income statement. There is one more financial statement that is critically important: the statement of cash flows. That statement helps managers to see what the sources of cash are and where cash is spent. The idea, remember, is to have cash available when you need it. The statement of changes in cash flows helps managers to understand where cash is going so that they can keep more cash on hand. Some people say that cash flow statements are more important than the balance sheet and income statement. The truth is that all three statements are very important to all organizations.

A balance sheet is the financial statement that reports the financial condition of a firm at a specific time. It is composed of assets, liabilities, and owners’ equity. Note that the income statement reports on changes over a period of time and the balance sheet reports financial conditions at a specific point in time.

The words balance sheet imply that the report shows a balance, an equality between two figures. That is, the balance sheet shows a balance between assets on the one hand, and liabilities plus owners’ equity on the other. The following analogy will explain the idea of the balance sheet.

Let’s say that you want to know what your financial condition is at a given point in time. May be you want to buy a new house or car and need to calculate the resources you have available to buy these things. First, you would add up everything you own – cash, property, money people owe you, and so forth. Subtract from that the money you owe others (for example, credit card debt) and you have a figure that tells you that, as of today, you are worth so much.

II. Answer the questions:

1. What do financial statements provide?

2. Why may accountants and finance managers work together?

3. What is a financial statement?

4. What are the main financial statements?

5. What is the difference between the balance sheet and the income statement?

6. What balance is shown in the balance sheet?

7. What document shows what the sources of cash are and where cash is spent?