Partnership Financial Statements Vs. Corporate Financial Statements

All businesses keep financial records as a way of tracking the business's performance. Partnerships, which divide ownership of a business between two or more people, account for their financial activities much in the same way that corporations do. Although there are some important differences, both entities use three major financial statements, the balance sheet, the income statement or profit and loss statement, and the cash flow statement. Each also produces a statement of equity.

Partnerships and corporations both produce a statement of equity, also called a retained earnings statement. This shows how much the business has left over after all its debts are paid. In a partnership, the statement of equity shows each partner's share of the business's equity along with total equity. A corporation's statement of equity has only one column -- total equity. Both have the amount of capital the business had at the start of a reporting period -- often a year -- followed by additional investments, income and withdrawals. The last line shows how much in capital is left over.

The balance sheet is a record of a business's assets, liabilities and owners' (or partners') equity. Instead of representing a time period, such as a year, quarter or month, it's "as of" a certain date. Assets are at the top and include cash, investments, receivables and other items such as real estate. Liabilities are next and include the business's debts. Equity, or retained earnings is at the bottom; partnerships show each partner's equity, with a total, while corporations show total shareholder equity. Total liabilities plus partner or shareholder equity equals total assets for both partnerships and corporations.

The income statement, also called a profit and loss statement or "P and L," shows a business's income and expenses over a set period of time. Revenue and income are at the top, and expenses are at the bottom, followed by the business's net income calculation. Net income equals total revenue minus total expenses. Although there are differences between the balance sheet and statement of equity for partnerships and corporations, the income statement is the same (unless revenue and expenses are categorized by partner).

The cash flow statement for both partnerships and corporations shows how much money comes in and goes out over a period of time. It converts income from operating and investing activities to cash. It also shows payments the business made for financing and taxes, and reflects the business's ability to cover its obligations. The cash flow statement not only shows the corporation's and the partnership's past activities, it shows future activities, at well. Like the income statement, the partnership and corporate cash flow statements are similar.