Financial Statements are often required by GAAP principles and include: the income statement, balance sheet, and cash flow statement.

Income Statement

The income statement measures how much the business has either earned or lost in a simple formula: Revenue – Expenses = Net Income or Loss. The typical line items on an income sheet include:

  • Revenue: Amount made from generated sales
  • COGS: Direct costs associated with selling the goods
  • Gross profit: Revenue – COGS
  • Fees
  • Depreciation: Loss in value of assets over time.
  • Operating Income: Gross profit – operating expenses
  • Interest expense: debt interest
  • Net income: Revenue – Expenses

Balance Sheet

Lists assets, liability, and equity at any given time. The purpose of a balance sheet is to balance. That is, the assets should equal the combination of liability and equity. Who goes in should also be reflected in what goes out. If there is no balance, then the balance sheet has an error.

Cash Flow Statement

Describes a business’s cash inflows and outflows over a given period of time.


The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.

Will Laursen

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