LUBS 1235 2.2 Explain the nature and purpose of a statement of financial position, income statement and statement of cash flows and the relationship between them

What are the three key financial statements prepared by organisations

Statement of Financial Position (Balance Sheet)

Statement of Profit or Loss (Income Statement)

Statement of Cash Flows (Cash Flow Statement)

What is the Statement of Financial Position (Balance Sheet)

It shows the accumulated wealth of the business at a specific date, listing its assets, liabilities, and capital/equity

What does the Statement of Financial Position represent

It is a snapshot of what the business owns (assets), owes (liabilities), and the owners’ interest (equity) at a particular moment in time

What is the Statement of Profit or Loss (Income Statement)

It shows the profit (or loss) the organisation made over a period by deducting expenses from income (usually sales revenue)

What does the Income Statement measure

The financial performance of a business — how much wealth it generated (profit) during the accounting period.

What is the Statement of Cash Flows (Cash Flow Statement)

It reports the major cash inflows and outflows during a period, showing how cash was generated and used.

Why is the Statement of Cash Flows important

It provides insight into the liquidity and cash management of a business, complementing profit figures with actual cash movement

Do all organisations prepare a Statement of Cash Flows

No. Smaller organisations may not prepare one, but it gives a more complete picture of financial health