Introduction Understanding these financial statements is helpful when preparing them. Statements simplify a variety of transactions and activities, making them understandable and meaningful. It should be noted that the income statement and cash flow statement are both for a period of time, but the balance sheet is for a moment in time. These statements provide relevant information for internal and external users. The Profit and Loss Statement An income statement is sometimes called a profit and loss statement, profit and loss statement, or profit and loss statement. (Melicher, 2014) Reports revenue first, followed by expenses, and the bottom line with net profit or loss for a specific period of time, such as a quarter or a year. Net Income (Melicher, 2014) Reports assets at the top, followed by liabilities and equity. Assets are the physical items owned by a business, used to carry out production and sales operations. Assets have the ability to provide future services, producing cash flows. The most liquid assets are listed first on the balance sheet. The main types of assets are current assets and fixed assets. Current assets are cash and other assets that are expected to be converted into cash or depleted within a year. They represent the working capital necessary to carry out normal business operations. Some current assets are: cash, short-term investments, receivables, inventories, and prepaid expenses. Fixed assets, also called property (land), plant and equipment, are the physical structures used in the production, storage, display and distribution of a company's products. These goods provide services to businesses for a number of years. Another type of asset is intangible assets; they hold rights that will come from owning long-lasting assets that you can't see or feel. They can be in the form of contracts or together they compromise fairness. Common stock is the number of outstanding shares held at stated or par value and paid-in capital in excess of par value. (Melicher, 2014) Its main purpose is to maintain the distinction between paid-in capital and retained earnings. Preferred shares are another type of shares that have a certain preference over ordinary shares. It is listed first in the net worth section because of its dividend and liquidation preferences. Companies have the option to issue cash or illiquid assets at par value or no par value. Retained earnings represent net profit reserved for future use. It is invested in the firm's current or fixed assets, but cannot be