Financial Statement

Financial statements turn thousands of individual transactions into a few clear reports that people outside the business can understand.

Each statement answers a different question. The balance sheet shows what the business owns and owes at a particular date. The income statement shows how much revenue was earned and what expenses were incurred over a period, ending with profit or loss. The cash flow statement shows how cash moved in and out over the same period. A fourth statement shows changes in equity, and the notes explain the figures in detail.

The statements are connected. Profit from the income statement increases equity on the balance sheet. The cash flow statement explains why the cash balance on the balance sheet changed between two dates.

Investors use financial statements to judge profitability and value, lenders to judge whether loans can be repaid, managers to make decisions and tax authorities to check tax owed. For many companies, the statements must follow GAAP or IFRS and be checked by independent auditors.