It can be helpful to explore a theoretical financial report example. The following section will show the three main types of financial statements for a theoretical company named company ABC. Each statement will be accompanied by a brief explanation.
Balance Sheet for Company ABC as of December 31, 2020
Assets:
- Cash and cash equivalents: $1,000
- Accounts receivable: $2,000
- Inventory: $3,000
- Other assets: $4,000
Total assets: $10,000
Liabilities:
- Accounts payable: $1,000
- Other liabilities: $2,000
Total liabilities: $3,000
Stockholders' equity:
- Common stock: $4,000
- Retained earnings: $3,000
Total stockholders' equity: $7,000
Total liabilities and stockholders' equity: $10,000
The balance sheet for company ABC shows that the company has total assets of $10,000 and total liabilities of $3,000. This leaves stockholders' equity of $7,000. Stockholders' equity is the portion of a company's assets that belongs to the shareholders. It is calculated by subtracting liabilities from assets.
Income Statement for Company ABC for the Year Ended December 31, 2020
Revenue:
- Sales: $10,000
- Other revenue: $1,000
Total revenue: $11,000
Expenses:
- Cost of goods sold: $4,000
- Selling, general, and administrative expenses: $3,000
- Depreciation and amortization expense: $2,000
Total expenses: $9,000
Income from operations: $2,000
Other income (expense): $(500)
Net income: $1,500
The income statement for company ABC shows that the company had total revenue of $11,000 and total expenses of $9,000. This left income from operations of $2,000. Other income (expense) was $(500). This resulted in a net income of $1,500.
Cash Flow Statement for Company ABC for the Year Ended December 31, 2020
Operating activities:
- Net income: $1,500
- Adjustments for reconciling net income with net cash provided by operating activities:
- Depreciation and amortization expense: $2,000
- Changes in assets and liabilities:
- Accounts receivable: $(1,000)
- Inventory: $500
- Accounts payable: $500
Net cash provided by operating activities: $3,500
Investing activities:
- Purchase of property and equipment: $(4,000)
Net cash used in investing activities: $(4,000)
Financing activities:
- Issuance of common stock: $4,000
Net cash provided by financing activities: $4,000
Net increase in cash and cash equivalents: $3,500
The cash flow statement for company ABC shows that the company had net cash provided by operating activities of $3,500, net cash used in investing activities of $(4,000), and net cash provided by financing activities of $4,000. This resulted in a net increase in cash and cash equivalents of $3,500.
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