The following is a brief introduction to financial statements. The examples used in this Chapter will illustrate some of the essential elements of each.
There are various elements to a full set of financial statements. From a modelling perspective, the core statements are:
(Other statements such as The Statement of Funds Flows, or The Statement of Retained Earnings are less relevant from a modelling perspective, at least at this point in the materials).
The Balance Sheet has two sides (Assets, and Liabilities). The total of the value of items on each side is the same (that is, the Balance Sheet “balances”). The two sides can be thought of as:
… which is sometimes written as:
(in which the Liabilities are the non-equity claims i.e. all claims on the business aside from those of the owners, who are generally required to be in a position resolve all claims before being able to make their own claim on the business).
These concepts are illustrated within the examples later in the Chapter.