What is a financial statement?

Financial statement? (definition)

Financial statements are reports that show the financial activities, performance and earning potential of a business.

These reports are often used by shareholders, directors and lenders for financial decision-making.

Types of financial statements

In Accounting there are 4 basic financial statements:

1. Balance sheet: The statement highlights the financial condition of the business at a specific point in time. The focus is on the assets versus the liabilities, a positive net asset value is what is stable, even better a growing net value.

2. Profit and loss statement: Here the income and expenses are recorded. The net result is the business’ net profit.

3. Cash flow statement: Here the changes in your cash and cash equivalents are broken down to analyse the current year changes in investment, financing and operating results of the entity.

4. Statement of changes in equity: The statement records the earnings and reserves and indicates the health of the business.