Within a set of financial statements, you'll find three main financial statements, which are the income statement, the balance sheet, and the cashflow statement. We're going to have a quick look at what each one shows us in turn.

Firstly, the income statement shows the profit or loss made by the business over a certain period of time, which is why it is also sometimes called the profit and loss account or P&L account. It can also be referred to as the statement of financial performance. These three terms all mean the same thing. It shows the revenue a business has made from sales, as well as any other income, such as interest on investments and deducts from this. All of the costs a business has incurred, such as the cost of the goods they've sold, any marketing or admin expenses, as well as interest and tax expenses incurred. If total revenue is more than total costs, then the company has made a profit.

The balance sheet shows the financial position of the company at a particular point in time. And for this reason can also be referred to as the statement of financial position. It's a snapshot of all of the company's assets, liabilities, and equity on a specific date. To put it simply, one half of the balance sheet shows everything the company owns. In other words, its assets, and the other half shows everything that it owes. In other words, its liabilities and its equity, which ultimately belongs to the shareholders. These two sides must balance giving this statement its name.

Finally, we've got the cashflow statement, which shows all of the cash inflows and cash outflows for the company over a period of time, these cash flows are categorized into three sections, operating cash flows, which capture the day-to-day activities of the business, such as buying and selling goods or paying salaries, investing cash flows such as buying a new machine and financing cash flows, including, for example, taking out or repaying a loan or issuing or repurchasing shares. The cash flow statement might sound like it's pretty similar to the income statement Since they both cover the same period of time, but there is a big difference between them. The cashflow statement shows only cash inflows and outflows while the income statement records transactions as they take place, sometimes referred to as accrual accounting.

Although for many transactions, the cash moves at the same time as the transaction takes place, such as buying food at a supermarket. This is not always the case. For example, if a company makes sales on a credit basis, allowing the customer say, 30 days to pay for the product, this would be recorded as revenue in the income statement, but would not have any impact on the cashflow statement until the money is received in from the customer in 30 days time.