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Financial statements refer to reports prepared to evaluate the performance, financial health and the liquidity position of the business. Financial statements are prepared using the transactions accounted in the books of the account. In simple words, all the accounting data is consolidated into a financial statement in a manner which is generally accepted and understood.
Traditionally, financial statements were prepared annually i.e. after the closure of the accounting period. With modern-day business operations and requirements, the business owners depend on the financial statements for decisions making. As a result, businesses prepare financial statement monthly, quarterly and half-yearly as well. The insights from the financial statements are reliable and help business owners to make confident decisions.
Financial statements are used by internal users as well as external users. The financial statements depict the overall financial health of the business and help users to make better business decisions.
Using the accounting records, 3 types of financial statements are prepared by the company. These 3 types of financial statements provide insights about the financial health, profitability and liquidity of the business. Following are the 3 types of financial statement:
All the financial statements are prepared using the accounting transactions recorded in the books of the accounts. Preparing financial statements is one of the outcomes of accounting i.e. analyzing and interpreting the business transactions.
The following are the steps to prepare a financial statement:
Cashflow statement is an independent financial statement which compliments balance sheet and income statement. Cash flow statement is prepared considering the operating activities, investing activities and financing activities.