Accounting

Question 1

Balance Sheet

Answer 1

The balance sheet is a snapshot at a point in time. On the top half you have the company’s Assets and on the bottom half its Liabilities and Shareholders’ Equity (or Net Worth). The assets and liabilities are typically listed in order of liquidity and separated between current and non-current.

Question 2

Income Statement

Answer 2

The income statement covers a period of time, such as a quarter or year. It illustrates the profitability of the company from an accounting (accrual and matching) perspective. It starts with the revenue line and after deducting expenses derives net income.

Question 3

Cash Flow Statement

Answer 3

The cash flow statement has three sections: cash from operations, cash used in investing, and cash from financing. It can be calculated using the direct approach or the reconciliation approach. It “undoes” all of the accounting principles and shows the cash flows of the business.