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Business & economics · University

Financial statements

A report of revenue and expenses over a period.

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Prerequisites

Basic arithmetic and percentages.

Study notes

Income statement

A report of revenue and expenses over a period.

Balance sheet

A report of assets, liabilities and equity at a point in time.

Cash flow statement

A report grouping cash inflows and outflows by activity type.

Retained earnings

Accumulated earnings retained in the entity after distributions, subject to the accounting framework.

Worked examples

Which term best matches this description: A report of revenue and expenses over a period.

Income statement is the matching concept in this lesson.

Income statement

Which term best matches this description: A report of assets, liabilities and equity at a point in time.

Balance sheet is the matching concept in this lesson.

Balance sheet

Check your understanding

  1. Which concept would you apply first in a situation where a report grouping cash inflows and outflows by activity type.

    1. Cash flow statement
    2. Income statement
    3. Retained earnings
    4. Balance sheet

  2. Name the concept described as: Accumulated earnings retained in the entity after distributions, subject to the accounting framework.

  3. Which statement about Income statement is most accurate?

    1. A report of revenue and expenses over a period.
    2. Accumulated earnings retained in the entity after distributions, subject to the accounting framework.
    3. A report of assets, liabilities and equity at a point in time.
    4. A report grouping cash inflows and outflows by activity type.

  4. Explain one important difference between Income statement and Balance sheet.

Answers and marking guidance

Answers and marking notes
  1. Cash flow statement

    The scenario directly calls for Cash flow statement.

  2. Retained earnings

    The intended concept is Retained earnings.

  3. A report of revenue and expenses over a period.

    The definition in the lesson notes gives the required condition.

  4. Income statement: A report of revenue and expenses over a period. Balance sheet: A report of assets, liabilities and equity at a point in time.

    Credit a clear distinction using both definitions and an appropriate example if supplied.

Further reading and review references

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