Financial Statement

What is a financial statement?

A financial statement is a formal document that lays out key details about a business’s income, expenses, assets, and liabilities. It helps people inside and outside the business understand the company's financial position. There are a few main types of financial statements.

• Balance sheet: The balance sheet shows what a business owns (assets), what it owes (liabilities), and what’s left for the owners (equity). It helps you understand the business’s net worth.
• Income statement: Also known as a profit and loss statement, an income statement tracks revenue and expenses over time. It tells you whether the business made a net profit or took a loss.
• Cash flow statement: This financial statement breaks down operating cash flow—where the business’s cash is coming from and where it's going. The cash flow statement shows how well the business handles operating expenses, investments, and financing. 

Larger corporations may need other financial statements, like a statement of shareholders’ equity, which shows changes in ownership interest over time. They might also prepare audited financial statements or include footnotes, extra schedules, or detailed breakdowns for investors and regulators.

Smaller businesses don’t necessarily need audited financial statements to be compliant. But they do need to prepare financial statements using standardized accounting rules. The two most common standards are:

• Generally Accepted Accounting Principles (GAAP): GAAP is a U.S. system for recognizing revenue, report expenses, classifying assets and liabilities, and disclosing a company's financial position.
• International Financial Reporting Standards (IFRS): IFRS is a global accounting framework that emphasizes transparency and consistency across international borders.

Financial statements that follow these accounting rules are a key part of running and growing a business. Investors and banks want to know about your company's financial performance before investing or providing a loan. It’s smart to have a bookkeeper or accountant prepare financial statements, update them regularly, and store them in a safe place.

FAQs

What are the main types of financial statements?

The main types of financial statements are the balance sheet, income statement, and cash flow statement. Each one shows different aspects of your financial position and helps with planning and decision-making.

What are the financial statements for a small business?

Small businesses usually prepare a balance sheet, income statement, and sometimes a cash flow statement. These give a basic overview of cash flow and financial performance and help with taxes, loans, and internal planning.

Do financial statements need to be notarized?

No, financial statements do not need to be notarized. They just need to be accurate, up-to-date, and prepared according to the right accounting standards.

Does a business plan need financial statements?

Yes, most business plans include financial statements or projections. This helps potential investors, lenders, or partners understand your business’s financial position and how you expect to make money.