Meaning of Financial Statements

Financial statements are the formal, annual reports that a company’s management prepares to communicate financial information to its owners and to external parties. These external parties include investors, tax authorities, the government, employees, and others who have an interest in the company’s performance and financial position.

The three core financial statements are:

• The Balance Sheet (Position Statement): A snapshot of the company’s assets, liabilities, and shareholders’ equity as at the end of the accounting period.
• The Statement of Profit and Loss: A summary of the company’s revenues, expenses, gains, and losses over the accounting period, showing the net profit or loss.
• The Cash Flow Statement: A report showing the inflows and outflows of cash and cash equivalents during the period, classified into operating, investing, and financing activities. …