What is Financial Statement ?

 What is Financial Statement ?

A financial statement is a formal record of a company's financial activities and position. It provides a summary of a company's financial performance over a specific period, typically on a quarterly or annual basis. Financial statements are essential tools for both internal and external stakeholders, such as investors, creditors, regulators, and company management, to assess the financial health and performance of a business.

There are three main types of financial statements:

1. Income Statement (Profit and Loss Statement):

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3. This statement provides a summary of a company's revenues, expenses, gains, and losses over a specific period, usually a quarter or a year. It calculates the net income or net loss of the company, which reflects its profitability during that period.

1. Balance Sheet (Statement of Financial Position):

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3. The balance sheet provides a snapshot of a company's financial position at a specific point in time, usually at the end of a quarter or fiscal year. It lists the company's assets (what it owns), liabilities (what it owes), and shareholders' equity (the residual interest in the company's assets after deducting liabilities). The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Equity.

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5. Cash Flow Statement:

6. This statement details the cash inflows and outflows of a company during a specific period, typically divided into operating, investing, and financing activities. It helps stakeholders understand how a company generates and uses cash, which is crucial for assessing its liquidity and ability to meet its short-term and long-term obligations.

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Financial statements are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the jurisdiction and the reporting entity. They provide a comprehensive view of a company's financial performance, financial position, and cash flow, which is vital for making informed investment decisions, evaluating creditworthiness, and conducting financial analysis.