Financial Statement Definition and Example
Financial Statement Definition – “Reports of a company’s financial performance. The three fundamental statements are the income statement, the balance sheet, and the cash flow statement; they present related information but provide different perspectives on performance.”
In short and simple words, financial statement is a statement that provides financial information of an organisation. There are three financial statements that are universally prepared and used. These are Balance Sheet, Income Statement and Cash Flow Statement.
Financial Statement Example
To understand financial statement definition in better way, let’s discuss some of its example.
Balance Sheet – This statement consists of the summary of the assets, liabilities, shareholder’s equity of an organisation. This is prepared on a certain date and reflects the financial position of a particular organisation on that date. Companies prepare it quarterly, half yearly and annually.
Income Statement – It is a statement which matches the companies revenues with that of expenses. The surplus in revenue results in net income, whereas deficit in revenue leads to net loss. It is prepared over a period of time. Most companies prepare it annually, however now quarterly and half yearly statements are also common.
Cash Flow Statement – It is a statement which is a blend of Balance Sheet and Income Statement. It deals with the cash inflows and cash outflows of the business. It consists of three activities – operational activity, investing activity and financial activity. Operating activity consist of cash flows from day to day operation. Investing consists of buying and selling of assets and financing consists of cash flows and inflows from equity or debt.
Related Financial Terms of Financial Statement
Importance of Financial Statement
Financial Statement plays an important role in assessing the financial performance of an organisation. These statements reflects the sources and uses of cash. Determine whether the business is capable of paying their debts. In addition to this, it shows where the organisation stands in terms of its finances. It also provides basic elements for calculating the financial ratios.