Here are the four elements you must include in your annual financial statements

Simangele Mzizi, Fsp Business, 22 Sep. 2014

Tags: what to include in annual financial statements, financial statements, annual financial statements

You know that annual financial statements are a compilation of the hundreds of documents that represent the transactions of your business.

You also know that the Companies Act requires you to compile or create financial statements for your company.

But, do you know the four elements you must include in your annual financial statements?

If not, keep reading to find out what they are so you can ensure your annual financial statements are legally compliant.

Include these four elements in your annual financial statements

The Practical Accountancy Loose Leaf Service says the elements of your financial statements are defined by the accounting standards you use, but generally they include:

Element #1: Statement of financial position (balance sheet)

The statement of financial position shows: EQUITY = ASSETS – LIABILITIES. (A company’s equity equals the sum of its assets less the sum of its liabilities at the company’s year-end.)

It’s basically a snapshot of your business at a fixed point in time.

Element #2: Statement of Comprehensive Income (Income Statement)

The Statement of Comprehensive Income will tell you if your company made a profit. It shows the company’s net earnings or losses.

This means you’ll be able to see how much revenue your company earned over a specific period less the costs and expenses associated with earning that revenue.

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Element #3: Statement of cash flow (Cash Flow statement)

A statement of cash flow tells you if your company generated cash. It’ll help you determine if your company is viable in the short-term (i.e. if you can pay the bills).

Element #4: Statement of changes in equity (Statement of Retained Earnings)

This statement tells you your company’s wealth and if it has any earnings to carry forward into the following years. It also shows the changes in the interests of the company’s shareholders over time.

Knowing the four elements to include in your annual financial statements will help ensure your statements are legally compliant.

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