Definition of Financial Statement

Definition of Financial Statement

Financial statements are prepared by accountants to provide business owners with an accurate snapshot of their financial status at a specific point in time. In addition, business owners must supply their banker or other lender with copies of these financial statements on a monthly, quarterly or annual basis; therefore, these documents are expected to be accurate representations of the company's financial status. If they are not, it is considered fraud if the business owner realizes the discrepancy and submits them to his lender anyway.

1.     Financial Statement Defined

Financial statements are quantitative documents created monthly, quarterly or annually that show the financial health of a particular company at a particular time, and they generally are comprised of four reports: a balance sheet, an income statement, a cash flow statement and a shareholder's equity statement.

2.     Financial Statement Features

The balance sheet portion of the financial statement shows a company's assets, liabilities and net worth. Assets generally include cash, machinery, land and other items of value. The income statement shows the company's sales, expenses and net profit from operating the business during the period. The company's cash flow statement shows the cash received and the cash paid out during the period analyzed. And the company's shareholder's equity statement is a reflection of what a company's profit total would be if its assets were sold and all debts paid at that particular moment in time.