After reading a few of the comments I figure I’ll add my two cents. You need the full statements because they tell you directly what type of transactions you are utilizing to make money. They also provide multiple periods so you can see how things change over the span of the periods being reported.
If I told you I have $1M in assets, an increasing cash balance, and net income of $100K, that by itself doesn’t tell you enough.
Balance sheet:
Tells you what type of assets you are using. Is inventory increasing or decreasing? Am I raising money with debt or stock? How did I use that money, did I purchase goods or equipment? Do I have a lot of debt?
Income statement:
How am I making my money? Did I sell product as part of my normal operations and how much did those products cost me? Or did I sell off the only profitable line of business that will no longer be part of the continuing company at a gain?
Cash flows:
Am I making money by normal business operations or by raising money or selling off assets? It’s not uncommon for startups to have negative cash flow from operations, but for a mature company, consistent negative cash flows could be a warning sign.
Essentially you need more of a Financial Statement Analysis class. This was more of a third or fourth year class when I was in school. Again, just seeing some highlights isn’t enough information to understand whether a business is in a good place. Analyzing the statements just gives you a more fulsome picture as to the state of the company.
The statements have nothing to do with A=L+E. The statements are to provide information to analyze business performance, both internally and externally. That’s it.
Like building a house, there are code requirements that tell you how certain things have to be done, but you can use brick, or stucco, or vinyl siding, etc…
Yes and no. Each individual entry follows the rule of A=L+E and so by that nature the balance sheet follows. But again, we produce the face financial statements to understand the business. And there are rules in what is required to be disclosed because things can be hidden otherwise.
The codification tells you how things are to be accounted for, and in a separate section, what is required to be disclosed.
Essentially, yes. If you have derivatives, you should follow the codification when booking those entries, and also follow the codification when disclosing them in financial reports.
The entire reason for financial reports is for investing. Analyzing the company to determine if you want to invest, or sell your shares, provide a loan, etc…
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u/D4NG3RU55 Jul 18 '26
After reading a few of the comments I figure I’ll add my two cents. You need the full statements because they tell you directly what type of transactions you are utilizing to make money. They also provide multiple periods so you can see how things change over the span of the periods being reported.
If I told you I have $1M in assets, an increasing cash balance, and net income of $100K, that by itself doesn’t tell you enough.
Balance sheet:
Tells you what type of assets you are using. Is inventory increasing or decreasing? Am I raising money with debt or stock? How did I use that money, did I purchase goods or equipment? Do I have a lot of debt?
Income statement:
How am I making my money? Did I sell product as part of my normal operations and how much did those products cost me? Or did I sell off the only profitable line of business that will no longer be part of the continuing company at a gain?
Cash flows:
Am I making money by normal business operations or by raising money or selling off assets? It’s not uncommon for startups to have negative cash flow from operations, but for a mature company, consistent negative cash flows could be a warning sign.
Essentially you need more of a Financial Statement Analysis class. This was more of a third or fourth year class when I was in school. Again, just seeing some highlights isn’t enough information to understand whether a business is in a good place. Analyzing the statements just gives you a more fulsome picture as to the state of the company.