What are General Purpose Financial Statements?

General Purpose Financial Statements

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General Purpose Financial Statements

General purpose financial statements are a set of reports provided by a company that are intended to meet the information needs of a wide range of users who require financial information about the company to make informed decisions. They are called “general purpose” because they are not tailored to the specific needs of any particular user group, but instead aim to meet the information needs of most users.

These statements typically include:

  • Balance Sheet (or Statement of Financial Position): This provides an overview of the company’s assets, liabilities, and equity at a specific point in time.
  • Income Statement (or Statement of Profit and Loss): This shows the company’s revenues, costs, and expenses over a period of time, providing information about the company’s profitability.
  • Statement of Cash Flows: This shows the cash inflows and outflows from operating, investing, and financing activities over a period of time, providing information about the company’s cash generation and usage.
  • Statement of Changes in Equity: This shows changes in the company’s equity over a period of time, such as issued share capital, dividends, and the results of the income statement.

In addition to these statements, companies often include explanatory notes, which provide more detailed information about the items in the financial statements. The management’s discussion and analysis section, where management explains the company’s performance and strategies, may also be included.

The purpose of these statements is to provide investors, lenders, regulators, and other stakeholders with a comprehensive view of the company’s financial health and performance. They are typically prepared according to a set of recognized accounting principles, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Example of General Purpose Financial Statements

Let’s use a hypothetical company, XYZ Inc., to provide a simplified example of what you might see in general purpose financial statements:

Balance Sheet as of December 31, 2023

XYZ Inc.
Accounts Receivable$15,000
Property, Plant, and Equipment$100,000
Total Assets$160,000
Accounts Payable$10,000
Long-term Debt$50,000
Total Liabilities$60,000
Common Stock$50,000
Retained Earnings$50,000
Total Equity$100,000
Total Liabilities and Equity$160,000

Income Statement for the Year Ended December 31, 2023

XYZ Inc.
Sales Revenues$120,000
Cost of Goods Sold-$60,000
Gross Profit$60,000
Operating Expenses-$30,000
Net Income$30,000

Statement of Cash Flows for the Year Ended December 31, 2023

XYZ Inc.
Net Cash from Operating Activities$35,000
Net Cash from Investing Activities-$10,000
Net Cash from Financing Activities-$5,000
Net Increase in Cash$20,000

Statement of Changes in Equity for the Year Ended December 31, 2023

Common StockRetained EarningsTotal Equity
Opening Balance$50,000$20,000$70,000
Net Income$30,000$30,000
Dividends Paid-$10,000-$10,000
Closing Balance$50,000$40,000$90,000

These statements provide a broad overview of XYZ Inc.’s financial situation. From these, stakeholders can understand XYZ’s asset base, debt load, income generation, cash flow situation, and changes in equity.

Please note that real-world financial statements are usually more complex and contain more line items and explanatory notes, but this simplified example serves to illustrate the general structure and content of these statements.

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