What are financial statements?

Financial statements, as used in corporate business houses, refer to a set of reports and schedules, which an accountant prepares at the end of a period of time for a business enterprise. The financial statements are the mediums with the help of which the accounting system performs its key function of providing abstracted information about the financial affairs of the business.

The significance of these statements is given below:

Balance Sheet or Position Statement
The balance sheet is a statement showing the nature and amount of a company’s assets on one side and liabilities and capital on the other. In other words, the balance sheet shows the financial conditions or state of affairs of a company at the end of a given period usually at the end of the one-year period. The balance sheet shows how the money has been made available to the business of the company and how the money is employed in the business. It doesn’t involve your financial planner’s stock tips for tomorrow plans.

Profit and Loss Account or Income Statement
Earning profit is the principal objective of all business enterprises and Profit and Loss account or Income statement is the document, which indicates the extent of success achieved by a business in meeting this objective. Profits are of primary importance to the Board of directors in evaluating the management of a company, to shareholders or potential shareholders in making investment decisions and to banks and other creditors in judging the loan repayment capacities and abilities of the company.

Statement of Changes in Financial Position
This is a statement, which summarizes for the period, the cash made available to finance the activities of an organization and the uses to which such cash have been put. This is the statement is also known as Cash Flow Statement, which summarizes the changes in cash inflows and outflows, by showing the various sources and applications of cash with MCX free tips.