Financial Statements

We at the firm of Steven M. Apa, CPA prepare financial statements using Generally Accepted Accounting Principles (GAAP).  The general purpose of the financial statements is to provide information about the results of operations, financial position, and cash flows of a business.  This information is used by the readers of financial statements to make spending decisions.  At a more granular level, each financial statement serves a unique purpose.

Balance Sheet

The balance sheet is the mothership of all financial information where all other financial statements and financial analysis begin.  The balance sheet informs the reader (user) about the current status of the business at a moment in time. This information is used to estimate the liquidity (cash), funding (loans), and debt position of an entity (total debt to total assets), and is the basis for many of the financial ratios.

Income Statement

The income statement (Profit & Loss; P&L) informs the user as to a businesses revenues and expenses over a period of time.  The businesses collection of revenue and expenditures provide an indicator of how management transforms it’s earnings into net profits or losses.  In addition, the P&L reveals the company’s volume of sales, the nature of its various types of expenses, and how those expenses are aggregated.  When the P&L is compared to prior periods, the income statement provides consistency and reasonableness trends in the results of company’s operations.

Statement of Cash Flows

A statement of cash flows shows how cash flows into and out of a business over a period of time.  Essentially, this statement allows the reader to understand the movement of cash through a business, which includes the inflows from operations, investments, and financing activities, as well the outflows for expenses and debt service.

Overall, the purpose for preparing financial statements is to transparently showcase where a company's money comes from, where it is going, and where it currently stands.  Financial statements provide crucial information for making investment decisions, evaluating creditworthiness, and monitoring management performance.  Some businesses are required by loan covenants to prepare and disclose financial statements periodically.  Ultimately, stakeholders like investors and lenders make informed decisions about the company's financial health and future prospects.