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. | |
|---|---|
| Assets | |
| Cash | $20,000 |
| Accounts Receivable | $15,000 |
| Inventory | $25,000 |
| Property, Plant, and Equipment | $100,000 |
| Total Assets | $160,000 |
| Liabilities | |
| Accounts Payable | $10,000 |
| Long-term Debt | $50,000 |
| Total Liabilities | $60,000 |
| Equity | |
| 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 Stock | Retained Earnings | Total 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.
