 Financial accounting records the financial transactions of a business and communicates this information to potential investors and creditors. The output of the accounting process are the financial statements. An income statement reports a business's profitability. A statement of owner's equity reports the change in the owner's capital account for a period. A balance sheet details the economic resources of a business and the claims on those resources. And finally, a statement of cash flow reports the cash inflows and outflows for various business activities. The income statement, which is sometimes called the statement of operations or a P&L statement, reports how profitable a company is. On a simple income statement, there are just two categories of accounts. Revenues and expenses. The difference between revenues and expenses is called net income. This occurs when a company has more revenues than expense. Net loss occurs when a company has more expenses than revenues. Net income is one of the first things investors and creditors look at in the financial statements. The statement of owner's equity is prepared after the income statement. This is because the information from the income statement is used on the statement of owner's equity. Owner's equity is increased by owner investment and net income. It is decreased by owner withdrawal and net loss if a company had a loss. The balance sheet is sometimes called the statement of financial position. Meaning that at any point in time it tells us how many assets a company has, how many liabilities or debt a company has, and how much equity the company has. The most common format of the balance sheet is the classified balance sheet. In this format, assets and liabilities are classified into two categories, current and long term. The easiest way to remember if something is current or long term is the one year cutoff. Less than one year it is current. More than one year it is long term. So current assets are those assets that will be collected in cash or used up in one year or less. You can see some common examples on the slide. Long term assets are those assets that are expected to provide value into the future more than one year. Again, there are common examples on the slide. Current liabilities are those debts that will be paid in less than one year. Long term liabilities are those liabilities that are expected to take longer than one year to pay off. There are some examples on the slide. Owner's equity reports the ending balance of owner's capital from the statement of owner's equity. Withdrawals which are also an equity account are reported only on the statement of owner's equity. The statement of cash flow reports the change in cash for a reporting period by reporting cash receipts and cash payments from three categories of activities. Operating activities section reports cash collection and payments from transactions related to the operations of a business like buying and selling goods or services. Investing activities section reports cash receipts and payments for transactions involving long term assets. Financing activities section reports cash receipts and payments for transactions involving long term liabilities and equity. And that concludes this brief overview of the financial statements. You'll learn more about them and get a chance to prepare them in future videos related to the accounting cycle.