[Biz] balance sheet vs cash flow statement

1. balance sheet

The balance sheet is prepared in order to report an organization's financial position at the end of an accounting period, such as midnight on December 31.

A corporation's balance sheet reports its:

• Assets (resources that were acquired in past transactions)
• Liabilities (obligations and customer deposits)
• Stockholders' equity (the difference between the amount of assets and liabilities)

You can view the balance sheet as reporting the assets and the claims against those assets (liabilities and stockholders' equity). You can also view the balance sheet as reporting a corporation's assets and the amounts that were provided by creditors (the liabilities) and the amounts provided by the owners (the stockholders' equity).

A classified balance sheet reports the current assets in a section that is separate from the long-term assets. Similarly, current liabilities are reported in a section that is separate from long-term liabilities. This allows bankers, owners, and others to easily compute the amount of an organization's working capital and current ratio.

 

2. cash flow statement

The cash flow statement is one of the main financial statements of a business or a nonprofit entity. (It is also known as the statement of cash flows.) The cash flow statement reports a company's major sources and uses of cash during the same period of time as the company's income statement. In other words, it lists the major reasons for the change in a company's cash and cash equivalents reported on the balance sheets at the beginning and the end of the accounting period.

The cash flow statement is needed because the income statement reports the revenues earned and the expenses incurred using the accrual method of accounting. These amounts are different from the amount of cash received and paid. Also, the company's annual income statements might report 3% of a new building's cost as depreciation expense, but the company may have paid cash for 100% of the building's cost in the year it was constructed. Since cash is critical for a company's operations and decision making, it is necessary to have the cash flow statement.

 

 

 

 

 

Balance Sheet: Explanation, Components, and Examples