China’s Accounting Law: Composition of financial reports

China’s Accounting Law:  Composition of financial reports
Financial statements are a structural representation of the financial position, operating results, and cash flows of an enterprise. Financial statements should at least include the following components: balance sheet, income statement, cash flow statement, statement of changes in owner's equity, and notes.
1. Accounting statements
Accounting statements refer to the report documents that comprehensively reflect the economic activities, financial revenues and expenditures, and their results over a certain period of time based on the daily accounting information of the accounting books and in prescribed formats. Accounting statements include the following:
(1) Balance sheet. A balance sheet is a statement that reflects the financial position of an enterprise on a specific date. It is also known as a statement of financial position as it mainly discloses the assets, liabilities, owners' equity, and their interrelationships on a specific date. It is a static financial statement that reflects the financial position of an enterprise. A balance sheet is composed of an enterprise's resources (or assets), debts (or liabilities), and ownership (or owners' equity). Therefore, assets, liabilities, and owners' equity are commonly referred to as the three elements of a balance sheet.
(2) Income statement. An income statement is a statement that reflects the operating results and their distribution of an enterprise over a certain period of time. An income statement is a dynamic accounting statement that matches the operating income over a certain period of time with the operating costs related to the same accounting period to calculate the net income or net loss of the enterprise over that period. The costs reflected in the income statement can indicate the results of the enterprise's operation and management. And the comparative figures provided in the income statement over different periods can be used to analyze the development trend and profitability of the enterprise's future profits, and to understand the integrity of investors' capital investment.
(3) Cash flow statement. A cash flow statement is a dynamic accounting statement prepared on the basis of cash flows, and reflects the information of cash inflow and outflow of an enterprise over a certain period of time. As balance sheet and income statement, cash flow statement is one of the basic financial statements to be submitted by an enterprise. It can more directly and objectively reflect the financial position of an enterprise, and helps to evaluate the future cash flows of the enterprise, analyze the quality of the profit and loss of the enterprise, and develop China's foreign economic exchanges to align with international practices.
(4) Schedule. A schedule is an accounting statement that provides a detailed explanation or supplementary presentation of certain information included or not included in the main financial statements to help better understand and apply the main financial statements, and provides useful information for business decision-makers. It includes a profit distribution statement and a detailed statement of main business income and expenditure. A profit distribution statement refers to an accounting statement that reflects the distribution of an enterprise's profits and the balance of profits to be distributed in the following year. A statement of main business income and expenditure is an accounting statement that reflects the income, costs, expenses, taxes, and surcharges of various main businesses of an enterprise, as well as the profits obtained.
2. Notes to accounting statements
Notes to accounting statements refer to the explanations of the important accounting policies applied in the preparation of the accounting statements in order to correctly understand the contents of the accounting statements. They include basic accounting assumptions, accounting policies, changes in accounting policies, changes in accounting estimates, and supplementary explanations for certain items in the accounting statements.
3. Financial position explanation
A financial position explanation is a written document provided for understanding and evaluating the financial position and operating results of an enterprise. It mainly explains an enterprise's operation and management status, profits obtained and their distribution, increase/decrease and turnover of funds, payment of taxes, changes in various property items and materials, matters that have a significant impact on the financial position of the current or next period, matters that have a significant impact on the changes in the financial position of the enterprise and other matters that need to be explained from the preparation date of the balance sheet to the presentation of the financial report.