Definition: Financial statements are reports that show how income and expenses have affected the company as a whole. They provide a snapshot of the current financial standing of the business. There are many types of financial reports, but the three basic, essential financial statements are:
- Balance Sheet: Summarizes the assets, liabilities, and net worth (owners' equity) of a business on a particular date.
- Income Statement: (Also called Profit and Loss Statement.) An accounting statement that shows the profit or loss for a business, by subtracting costs from its earnings, over a specific period of time, typically for a quarter or year.
- Cash Flow Statement: An accounting statement that forecasts cash receipts and disbursements for a specified period.
A fourth financial statement commonly produced is the Statement of Retained Earnings.
