Financial statement Essay Example | Topics and Well Written Essays - 1750 words

Financial statement - Essay Example An income statement reports on the organisations profits, expenses and income over a period of time. An income statement is also known as the profit and loss report, it provides information on the processes of the business enterprise. A statement of cash flows reports on an organisation’s cash flow activities,which include its processing, financing and investing activities. Financial statements for large companies are complex compared to the small companies because they include a wide range of notes added to the financial statements, management discussions, and analysis (Bragg, 2013). The notes added to the financial statements are considered as an essential part of the statements because they normally explain each item on the balance sheet, cash flow statement and income statement in further details. Albrecht an Stice (2011) defined capital maintenance as an accounting concept based on the principle that income is only recognized after capital has been maintained or there has been a full recovery of costs. When the amount of a company’s capital at the end of a period is unchanged from that at the beginning of the period,with any excess amount treated as profit (Albrecht an Stice ,2011). According to the writings of Taparia (2003), the concept of capital maintenance is significant as only income earned in excess amounts is needed to maintain capital may be considered as profit. There two concepts of capital maintenance are the financial capital maintenance and the physical capital maintenance. Under the concept of financial capital maintenance, profit is earned only if the financial amount of the net assets at the end of the fixed period exceeds the financial amount of net assets at the beginning of the period, after excluding any distributions to and contributions from owners during the period (Antle and Garstka,2004). Antle and Garstka, (2004) also stated that financial capital maintenance can be measured in either nominal monetary