Four Types of Financial Statements: Definition, Examples, Objectives

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So solid financial reporting, supported by the best financial reporting software, is important. Financial statements are the written reports which show the financial condition and performance of the company. For this reason, financial statements are used by many users, such as shareholders, investors, lenders, and suppliers, as the tools to make a business decision involving the company. The amount the business owes to its owner is called equity (also represents the amount of investment of the owner into the business).

Balance Sheet

These cash flows are divided into cash flows from operating activities, investing activities, and financing activities. The investing activities section contains cash flows from the purchase or sale of investment instruments, assets, or other businesses. The financing activities section contains cash flows related to the acquisition or paydown of debt, dividend issuances, stock sales, and so forth. The presented information is useful for determining the sources and uses of cash, and also indicates a firm’s financing situation.

• The balance sheet of an organization is prepared after the preparation of the Trading and Profit and Loss Account.
• The items included on the credit side are sales less returns, and other incomes.
• Below is a portion of ExxonMobil Corporation’s cash flow statement for fiscal year 2023, reported as of Dec. 31, 2023.
• It depicts the financial position of the organisation at a particular point in time.
• The financial statements provide summarized figures that give an indication of the current financial health of the business as well as its recent financial performance.
• Short-term debt is recorded as a current liability separate from long-term debt.
• A company’s balance sheet provides an overview of the company’s assets, liabilities, and shareholders’ equity at a specific time and date.

They are only interim reports

• However, it can indicate its financial position through the Balance Sheet.
• Assets shown in the balance sheet reflect merely unexpired or unamortised cost.
• In contrast, audited financial statements are reviewed by a certified public accountant (CPA) to ensure compliance with standard accounting rules.
• Double-entry accounting follows one simple rule, called the accounting equation.
• Users can analyze the income statement to see if companies are operating efficiently and producing enough profit to fund their current operations and growth.

They include the income statement, balance sheet, and statement of cash flows. Many companies also include a statement of owner’s equity or statement of retained earnings along with the other three statements. GAAP also requires certain additional financial and non-financial disclosures in a section called the Notes to the Financial Statements.

What is your current financial priority?

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. A company’s operating cash flow is a key metric in assessing the financial viability of its core operations. Per the income statement above, Apple, Inc.’s gross profit as of September 2021 was $152,836,000, the operating profit was $108,949,000, and the net profit was $94,680,000. These are compiled using Generally Accepted Accounting Principles (GAAP). GAAP is a set of guidelines and standards U.S.-based companies must follow when preparing their financial statements. In the example below, ExxonMobil has over $1 billion of net unrecognized income.

It is also known as the profit and loss (P&L) statement and is important in gauging the profitability of a business. The owner transfers a parcel of land to the company, and signs a contract for a building to be constructed. It’s accounting system consists of a new, “fresh” set of books, no entries have ever been made, all accounts have a zero balance. The accounting equation uses “simple math” and involves only addition and subtraction. In fact, almost all the math you will do in this course is simple math. We will occasionally use multiplication and division, but all changes to accounts will be addition or subtraction.

Financial Planning and Analysis (FP&A)

A statement of cash flows that shows how the information in each line item rolls up into the report totals appears in the next exhibit. The accuracy of financial statements is only as good as the information utilized to prepare them. The financial statements will also be inaccurate if a company’s accounting records are inaccurate. Most companies prepare financial statements on a quarterly or annual basis.