Five elements of a financial statement include the following.

1. Balance sheet (Statement of financial position)
2. Income statement (Profit and loss statement)
3. Statement of comprehensive income (SOCI)
4. Statement of changes in equity (SOCE)
5. Cash flow statement (CFS)

It’s important to note that notes to the financial statement are integral parts and not separate/distinct.

Let’s go through the details related to the financial statement component.

1-Balance sheet (Statement of financial position)

This component of the financial statement includes details like assets, equity, and liabilities. To ensure the balance sheet’s accuracy, total assets should equal the sum of equity and liability, as given in the equation below.

Total assets = capital/equity + liability

2-Income statement (Profit and loss statement)

The income statement is mainly comprised of revenue, cost of sales (expenses), administrative/operational expenses, finance expenses, other expenses, and other income.

Total expenses are deducted from total revenue to reach profit/loss.

So, if revenue exceeds expenses, the resulting outcome is profit. On the contrary, if expenses exceed revenue, the resulting outcome is loss.

Please further note that the resulting profit/loss is closed in the equity section of the balance sheet. A line item in the equity section, retained earnings, is adjusted with the current profit/loss. So, if there is a profit in the current accounting period, it’s added to the retained earnings account and deducted if a loss is reported in the current accounting period. This point is the only link between income statement and balance sheet.

3-Statement of comprehensive income (SOCI)

This statement reflects transactions related to unrealized profit/loss. It helps financial statement users understand technical aspects of gain/loss that should remain as unrealized in the current accounting period.

4-Statement of changes in equity (SOCE)

This component of the financial statement is attributed to equity movement. The equity movement is given below.

Opening equity = XXX

Current profit/loss = XXX/(XXX)

Closing equity/accumulated loss = XXX/(XXX)

When a new business starts, the opening equity equals zero. The closing balance of this statement helps the business owner understand total ownership interest. Similarly, drawings and dividends are distributed using the same account balance.

5-Cash flow statement (CFS)

This component of the financial statement reflects in- and out-cash movement. Generally, there are three categories for cash flow statements, including operating, investing, and financing activities.

Let’s go through each of the activities.

Operating activities—This section reflects cash movement in the context of business operations. For instance, items like interest, depreciation, and other non-cash expenses are added back to the operating profit. Similarly, operational items like account receivable, payable, and inventory are adjusted.

Financing activities– This section reflects financing activities like loan payment/repayment, equity payment/dividend/drawings, and other financing-related activities.

Investing activities—This section reflects cash movement activities in the context of investment, such as the purchase of plant, property, and equipment etc.

Conclusion

Five essential components of a financial statement include a balance sheet (statement of financial position), income statement (statement of profit and loss), statement of comprehensive income, statement of changes in equity, and cash flow statement.

The notes to the financial statement are an integral part of it. Hence, they are not considered a separate component.  

The balance sheet contains items like assets, liabilities, and equity.

The income statement enlists revenue & expenses.

SOCE reflects equity movement, and SOCI is about unrealized gain/loss.

The cash flow statement reflects cash in/out movement for activities such as operating, financing, investing, etc.