Financial Statement

Financial statements is a formal record of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form easy to understand. They typically include basic financial statements, accompanied by a management discussion and analysis:

  1. A balance sheet or statement of financial position, reports on a company’s assets, liabilities, and owners equity at a given point in time.
  2. An income statement or statement of comprehensive income, statement of revenue & expense, P&L or profit and loss report, reports on a company’s income, expenses, and profits over a period of time. A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the stated period.
  3. A Statement of changes in equity or equity statement or statement of retained earnings, reports on the changes inequity of the company during the stated period.
  4. A cash flow statement reports on a company’s cash flow activities, particularly its operating, investing and financing activities.

For large corporations, these statements may be complex and may include an extensive set of footnotes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.  Management discussion and analysis or MD&A is an integrated part of a company’s annual financial statements. The purpose of the MD&A is to provide a narrative explanation, through the eyes of management, of how an entity has performed in the past, its financial condition, and its future prospects. In so doing, the MD&A attempt to provide investors with complete, fair, and balanced information to help them decide whether to invest or continue to invest in an entity. The section contains a description of the year gone by and some of the key factors that influenced the business of the company in that year, as well as a fair and unbiased overview of the company’s past, present, and future. MD&A typically describes the corporation’s liquidity position, capital resources, results of its operations, underlying causes of material changes in financial statement items, events of unusual or infrequent nature, positive and negative trends, effects of inflation, domestic and international market risks, and significant uncertainties.

Financial statements have been created on paper for hundreds of years. The growth of the Web has seen more and more financial statements created in an electronic form which is exchangeable over the Web. Common forms of electronic financial statements are PDF and HTML. These types of electronic financial statements have their drawbacks in that it still takes a human to read the information in order to reuse the information contained in a financial statement. More recently a market driven global standard, XBRL (Extensible Business Reporting Language), which can be used for creating financial statements in a structured and computer readable format, has become more popular as a format for creating financial statements. Many regulators around the world such as the U.S. Securities and Exchange Commissionhave mandated XBRL for the submission of financial information. The UN/CEFACT created, with respect to Generally Accepted Accounting Principles, (GAAP), internal or external financial reporting XML messages to be used between enterprises and their partners, such as private interested parties and public collecting bodies. Many regulators use such messages to collect financial and economic information.