For an individual who is new to compiling a financial statement and recognizing which elements and equations are used to prepare one, it can get confusing. Various elements interact with one another within financial statements. With these interaction and the possible changes which could occur, these statements are affected.
It is essential to understand the relationship between the statements in order for an individual to not only know what they are putting together but also to understand what they are reading. The elements of the four financial statements which interact with one another are assets, liabilities, owners equity, revenues, and expenses. The two main types of statements which are recognized by most are the income statement and the balance sheet. These two are connected to one another. Within an income statement a companies or individuals revenues and expenses are apparent and are factors of a stock holders equity.
Changes in a stockholders equity can a change to the Revenue and Expenses recorded on a statement. Changes in elements go about altering a financial statement in many different ways, and various calculations are utilized to find the numbers which need to be reported. A large company can conduct a lot of transactions during the day, whether they are debits from the store, or credits to the store. Each one of these contribute to the ledger that the organization keeps in order to report their earnings and losses. These transactions and the shift is stockholders equity can definitely move a financial statements towards the positive or negative. It is essential to understand what an individual is looking at and the relationship between the statements in order ensure that numbers have not been changed or that the organization is not misleading the individual reading a statement in the wrong direction.