Financial Statement Definition - Example, Format, Types

Financial statements refer to such statements that indicate the profitability and financial condition of the business at the end of the accounting period. The term financial statement includes at least two basic statements which are as follows:
Business Financial Statement
Financial Statement

  • Income Statement or Trading and Profit and Loss Account, which shows the results of business actions for the accounting period.
  • Statement of financial position or balance sheet statement (Balance Sheet), which displays the financial position of an organization at a certain time.

Financial Statement Definition

The financial statement summarizes the accounts of a business undertaking, the balance sheet statement shows the Assets, Liabilities & Capital on a fixed date." And the income statement shows the results of business actions of a certain period. Both these financial statements are called Final Accounts.

In modern times, in addition to the above two basic financial statements, two other statements are also included in the financial statements, namely, Statement of Retained Earnings and Cash Flow Statement.

Objectives of Preparing Financial Statements:-

  1. To present the exact results (profit/loss) of the business actions of the business organization;
  2. To present an accurate picture of the financial position (assets and liabilities) of the business institution.

Users Of Financial Statement

The information provided by the financial statements is used by the managing investors, creditors, employees, government etc. The utility of financial statements for various parties is as follows:

(1) Management

Financial statements help the manager in determining the profitability of various activities and different departments. Based on these, managers can check the progress of the business and decide for control of non-profit operations.

(2) Investors

With the help of financial statements, they can determine the short-term and long-term financial strength and profitability of the business. He can also study the sales trend, profit trend, the employees of the institution, the prospects of future progress, etc.

(3) Short-term creditors

They ascertain on the basis of financial statements whether the institution will be able to repay the loans when they become due and decide whether the loan given by them to the institution. To be increased, kept at the current level or reduced.

(4) The long-term creditors

Based on the financial statements, they can determine that
  1. Whether the institution will be able to pay the interest regularly and
  2. Whether the institution will be able to pay the borrowings when they become due. On this basis, they can decide to increase the loans given to the institution, keep it at the current level or decrease it.

(5) Employees

Based on the financial statements, employees can decide how much bonus can be received from the benefits of the institution and how much increase in wages is possible.

(6) Government

Government uses the financial statements of various industries to study their profit limits so that it can be decided to grant or withdraw various types of rebates and increase or decrease the production duty.

(7) Taxation Authorities

They use financial statements to assess income tax, sales tax etc.

(8) Other users

Such as professional associations, consumer organizations, researchers, etc.

Financial Statement Include

In financial statement, we include 3 reports which are able to give us complete information about a business. Basically, we make our financial statements by giving priority to these statements, but this is incomplete information.
  • Trading Account
  • Profit & Loss A/c
  • Cash Flow Statement

Types Of Financial Statement

5 Types Of Financial Statement - Which is very important for a business if we miss any one of these 5 statements. So we will not be able to guess the future nor understand our financial position better. We can find out the financial position of any business by comparing it with the previous year's financial data.

Income Statement

Two Types Of Income Statement
  1.                                 Trading A/c
  2.                                 Profit & Loss A/c

Balance Sheet

Statement Of Change In Equity

Cash Flow Statement

Note's to Account (Note to financial Statement)

Financial Statement Format

format of financial statement - Usa
Financial Statement Format

How Do You Prepare Financial Statement

We have provided you with the format of how a financial statement Preparation and how it is prepared. And which reports are included in it, we have also told you above. Here we will talk about some basic terms that will help you in making a financial statement of any business. For this, you also have to understand some basic accounting terms. We will tell you about the details of assets, liabilities, and equity and owner share capital, which we include. We also know the financial statement by the name of the Final Accounts.

Step 1: Verify supplier invoice receipt

Step 2: Verify Issuing Customer Invoice

Step 3: Unpaid wages paid

Step 4: Depreciation Calculate

Step 5: Value Inventory (Price list)

Step 6: Reconciliation bank accounts (BRA)

Step 7: Post Account Balances

Step 8: Review Accounts

Step 9: Review Financials

Step 10: Payment of income tax

Step 11: Close Accounts

Step I2: Issue Financial Statements

Who Prepare a Financial Statement

How to Make Final Account | Trading A/c | Profit & Loss A/c | Balance Sheet | Financial Statement - Nowadays, tax consultants or certified public accountants (CPA), Charted Accountant - create a final account/financial statement. How do we create a trading account and then with its help create profit & loss account and then balance sheet. When working in any accounting software, when we create a ledger and then enter it. That accounting software automatic generates all our entries. With the help of accounting software, our trading account and profit & loss account and balance sheet are automatically created. With accounting software we do not know how it is made. It is very important to have an accounting knowledge for which ledger it has impacted. 

Final accounts (Financial Statement) are settled from the Trial Balance - For this, we need to know which balanches are written in the trial balance and how it has been created.

Trial Balance
Final Accounts
Trading Account      Profit & Loss             Balance sheet

  • First of all, we have to pass a journal entry in any company
  • Through a journal entry, we create an ledger.
  • We set up trial balance from Ledger.
  • When we create a ledger, our debit or credit balance comes out from it, we create a trading account.
  • That's why our trial balance is equal to debit and credit side. Our final accounts are prepared from the trial balance.
  • we make 3 accounts in the financial account  are - trading account, Profit & Loss A/c, Balance Sheet

Financial Statement Examples

How to Make Final Account | Trading A/c | Profit & Loss A/c | Balance Sheet | Financial Statement - Example Of Financial Statement

Sales: $3,200,000
Cost of goods sold: $1,920,000
Gross Profit: $1,280,000
Administrative overhead: $875,000
Profit before interest and taxes: $405,000
Interest: $32,000
Taxes: $128,00
Depreciation: $57,000
Net profits: $188,000
Cash: $60,000
Accounts receivable: $357,000
Inventory: $530,000
Fixed assets: $1,200,000
Total assets: $2,147,000
Accounts payable: $385,000
Short-term bank loans: $130,000
Long-term debt: $550,000
Equity: $1,082,000