Financial Statement
Components of Financial Statements
- Balance Sheet
- Statement of Profit and Loss
- Cash Flow Statement
- Notes and Schedules
Financial Statement
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Financial Statement Overview
A financial statement is a formal record of a company’s financial activities and position over a specific period. It includes key documents such as the income statement, balance sheet, and cash flow statement. The income statement shows revenues, expenses, and profit or loss, while the balance sheet provides a snapshot of assets, liabilities, and equity. The cash flow statement tracks the inflow and outflow of cash, reflecting operational, investing, and financing activities. Financial statements are essential for decision-making by stakeholders, such as investors, creditors, and management, offering transparency, assessing performance, and ensuring regulatory compliance. Accurate preparation fosters financial accountability and trust.
Characteristics of financial statements:
- Understandability: Stakeholders cannot use financial information which they are unable to comprehend. An organisation has to present the financial information in such a way that it helps in understanding the underlying information. 2.* Relevance:* Through relevant information, users can evaluate whether they are making the right economic decisions or not. Also, a set of information can also be considered relevant when it has the capability of correcting or confirming the existing thought process and information.
- Reliability: Information is reliable only when it is free from errors especially material ones, complete and free from any bias. Relevance does not suffice for reliability. A set of information must be reliable as well as relevant in order to be useful in decision making.
Objectives of Financial Statements
Financial statements are prepared to provide information that suits the common needs of all users. Users of financial statements could be any of the following:
- Investors
- Employees
- Lenders
- Suppliers and other trade creditors
- Customers
- Government and their agencies
- Public
FAQ ON FINANCIAL STATEMENT
Financial statements are formal records summarizing an organization’s financial activities and condition over a specific period. They include the income statement, balance sheet, cash flow statement, and statement of changes in equity.
They provide insights into a company’s financial health, profitability, and cash flow, helping stakeholders like investors, creditors, and management make informed decisions.
The income statement shows a company’s revenue, expenses, and net profit or loss over a period.
- The balance sheet provides a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
It tracks the cash inflows and outflows from operating, investing, and financing activities, highlighting liquidity.
Typically, accountants or financial professionals prepare them, ensuring accuracy and compliance with accounting standards.
They are usually prepared quarterly and annually, though internal reports may be generated more frequently.
