“Understanding Financial Statements and Cash Flow” There are four main financial statements. They are (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders’ equity. Now let’s take a look at the first three financial statements more in detail. The balance sheet is basically a snapshot of the firm. It is used to organize and summarize what a firm owns (assets), what a firm owes (liabilities), and the difference between the two (the firm’s equity) at any given time. A balance sheet shows a company’s assets, liabilities and shareholders’ equity at the end of the reporting period. It does not show the flows into and out of the accounts during the period. The Balance Statement only tells how the company stands on one particular day, for instance the 31st of December or 30th of April. The Balance Statement is usually made by the accountant but it is in your interest to understand it. Assets are things that a company owns that have value and are classified as either current or fixed. A fixed asset has a relatively long life, whereas, a current asset has a lifespan of less than one year. This means that the asset will convert to cash within a year. Cash, inventory, and accounts receivables are a few current assets. Fixed assets include things that can’t be touched but nevertheless exist and have value, such as trademarks and patents. Liabilities are amounts of money that a company owes to others. They are classified as current or long-term. Current liabilities have a lifespan of less than one year and need to be paid within a year. A long-term liability would be classified as a debt being owed, but not being due in the coming year. Liabilities can include all kinds of obligations, like money borrowed from a bank to launch a new product, rent for use of a building, money owed to suppliers for materials, payroll a