financial statements meaning
What is the meaning of financial statements?
Answer: Financial statements are formal records of the financial activities and position of a business, person, or other entity. These statements provide an overview of an organization’s financial condition in both the short and long term. They typically include income statements, balance sheets, cash flow statements, and statements of changes in equity.
The income statement shows a company’s revenues and expenses over a specific period of time, outlining the profitability of the business.
The balance sheet presents a snapshot of what a company owns (assets), what it owes (liabilities), and the amount invested by shareholders (equity) at a specific point in time.
The cash flow statement details the inflow and outflow of cash and cash equivalents over a certain period, providing insights into how a company manages its cash position.
Finally, the statement of changes in equity highlights the changes in equity of the company over a period, including shareholder contributions, dividends, and retained earnings. Financial statements are essential for stakeholders, such as investors, creditors, and management, to assess the financial health and performance of an entity. It helps in decision-making, investment analysis, and understanding the overall financial position of the organization.