Three Principal Financial Statements

The 3 Principal Financial Statements

I. The balance Sheet

Snapshot of the financial condition of a firm - Measured on a given date
ASSETS = LIABILITIES + EQUITY
• Assets : What you have - INVESTING - USES
• Liabilities : What you owe - FINANCING – SOURCES

a) Assets

• An asset is a resource that has a potential future economic (i.e. generate future cash inflows or reduce future cash outflows).
• An asset is recognized when:
 It is acquired in a past transaction or exchange
 The value of its future benefits can be measured with a reasonable degree of precision
• All assets are future benefits but not all future benefits are recognized as assets.

b) Liabilities

• A liability is a claim on assets by “creditors” (non-owners)