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Financial Statements … What you need to know


Financial Statements:

Financial Statements contains from 5 financial statement. The primary goal of financial accounting is the preparation of financial reports.

For the purpose of clarifying the financial position and profitability of the company on a specific date and providing useful financial information to the users , whether inside or outside the establishment.

the establishment represent a structural presentation of the financial nature of its financial position and the transactions it has completed.

Generally, financial statements aim to provide information about the financial position, activity results and cash flows that benefit a wide range of usersĀ  in decision-making and help to show the results of the administration’s use of the available resources.

To achieve this objective, the financial statements provide data on the following:

  1. Assets,
  2. Liabilities,
  3. Equity,
  4. Revenues and expenses including profits and losses,
  5. Other changes in equity and
  6. Cash Flow.

This information – in addition to other information contained in the notes supplementing the financial statements – helps the users of the financial statements in forecasting the future cash flows of the establishment, especially the timing and likelihood of generating these cash flows.


To achieve this goal, the International Accounting Standard No. 1 “Presentation of Financial Statements defined the general considerations for presenting the financial statements and provided an explanation of their structure and the minimum components of the required financial statements. And the income statement, as well as in the presentation of the statement of changes in equity.


Read about the auditing process step by step


So that the integrated financial statements must include the following components:

  1. Balance Sheet
  2. Income Statement
  3. Changes in Equity Statement.
  4. Cash Flow Statement.
  5. Supplementary Notes, including a summary of the most important accounting policies and any other explanatory notes.

Documents required to start preparing financial statements:

Accounting Cycle - Financial Statement
Accounting Cycle – Financial Statement

Preparing financial statements

  • Recording in the journal based on the evidence, supporting the occurrence of the financial process.
  • Posting from the Journal record to the ledger record, and the trial balance.
  • Preparing the trial balance of totals and balances.
  • Preparing the closing entries in the journal record and migrating them to the ledger to show the results of the final accounts.

Functions of financial statements:

  • Measure the assets that fall into the ownership of the company.
  • Measuring the obligations arising from the rights owned by the company (which are liabilities and the rights of capital owners).
  • Measuring the changes that occur to those assets, liabilities and the rights of capital owners.
  • Linking these changes to specific time periods.

Classification of the changes referred to as follows:

  1. Revenues, expenses, gains, and losses.
  2. Other changes in assets, liabilities, and capital rights.
  • Expressing the above in monetary units, as it is the general unit of financial measurement.
  • Preparing financial statements and periodic reports on the company’s assets, liabilities, rights of capital owners at a specific point in time, net income, and parts thereof, and cash flows during a certain period of time.