What is a Financial Statement?


A financial statement is a report that presents the financial facts about a company. There are 3 main types. Those types are a balance sheet, an income statement, and a statement of cash flows. You can also prepare financial statements about a person.

Balance Sheet

A balance sheet reports the financial situation of a company at a particular moment of time. As of this date what does the company own and what do they owe. For example: Company A has $500,000 in cash and $100,000 in equipment. They have $600,000 in assets. The company owes $400,000 to the bank (they took out a loan). That $400,000 loan is a liability. The difference between assets and liabilities is equity, which in this case is $200,000 (600,000 – 400,000). Equity is essentially what a company owns that is not owed to somebody else.

Income Statement

An income statement reports for a time period (a year, a quarter, etc.) how much money is coming in and how much money is going out. For example: company A sold $600,000 worth of widgets to their customers. That is their revenue. They spent $400,000 on salaries, equipment, marketing, etc. The company has income of $100,000.

Statement of Cash Flows

A statement of cash flows reports for a time period (a year, a month, etc.) the amount of cash that comes in and goes out of a company. For example: company A brought in $500,000 of cash and spent $400,000 of cash. The statement also tracks the sources of the cash inflow and what the cash is being spent on.

Difference Between Cash Flow and Income

The difference between cash inflow and revenue is that revenue include accounts receivable, which is when a product has been sold but the seller has not yet received cash for it. Cash inflow only accounts for cash received. The difference between cash outflow and expenses is that expenses include accounts payable, which is when a product has been bought but the buyer hasn’t yet paid any cash for it. Cash outflow only accounts for cash paid.

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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