2 Essay Example | Topics and Well Written Essays - 1000 words - 3

2 - Essay Example equal to capital and liabilities because when a person or an entity start their business, they inject the capital which can be in form of cash or other assets therefore at the beginning of the entity all there is are assets and capital. When the company expands it purchases goods or offers services which give rise to further assets and further liabilities as loans are acquired and credit is obtained out of that same capital. Some amount is also generated as profit for their business. Therefore, all the transactions of the entity take place through the same capital and the assets of the company must always equal their liabilities and capital. The statement of financial position gives the position of the company at a given moment of time where it provides the description of company’s assets, liabilities and equity from its establishment to that particular date, while the Income statement provides the details of all the income and expenditure activities during the year as at the date of balance sheet. In a nut shell, the financial position is the standing at that date while the Income statement is the movement during the period which is why the dates begin with ‘as at’ and ‘year ended’ respectively. The figure of net cash flow will mostly be different from that of net profit because the cash flows of the company are purely due to the monetary items such as sale, purchase, monetary income of dividend and interest, monetary expenses of salaries and rent etc. These expenses are purely of monetary nature while the net profits of the company not only involve these monetary items but also involve non cash items such as depreciation, fair value, amortization etc therefore normally cash and cash equivalents of the company are usually not equal to their net profit. Certain expenses are not affected by the cash flows of the company as it does not involve cash dealing on the time of the transaction. These expenses or income do not affect the cash flows because