Financial statements are the documents compiled by United States business entities to outline each entity’s financial position, activities, and overall information. A financial statement is meant to give an idea of a company’s financial condition, including revenues, expenses, assets and liabilities, cash flow, and more. Various individuals and bodies use an entity’s financial statements to understand more about that entity. Corporate management teams, investors, stock shareholders, employees, customers, clients, governmental authorities, stock exchanges, and other parties can benefit from the detailed financial information laid forth in an entity’s financial statements. In the United States, there are five different types of financial statements, which we have discussed in detail below.
The Five Types of Financial Statements
- The Income Statement
The income statement is intended to show revenues, operating expenses, profits, and losses for a specified period (such as a fiscal year). In essence, this type of statement shows what the company made and spent (and earned or lost) while executing operating activities for the reporting period in question. This type of statement is also often referred to as a profit and loss statement, or P&L. It is an accurate reflection of a company’s net income/net profit or net losses.
- The Balance Sheet
The balance sheet gives an at-a-glance impression of a company’s overall financial condition or financial position. Line items show the values of an entity’s fixed assets, liabilities, capital, and equity—which is to say, an overview of everything a company owns and everything it owes. Financial analysts refer to the balance sheet interchangeably as the “statement of financial position.”
- The Statement of Shareholder Equity
The statement of shareholder equity reflects the movement of equity for an entity over a particular period. This document may include shareholder contributions, details about share capital, a breakdown of dividend payments, earnings per share, and more. This statement is known by several other names, including statement of owner equity and statement of retained earnings.
- The Statement of Cash Flow
The statement of cash flow shows the changes in cash flow for an entity over a certain period of time. This type of statement should reflect the business’s Inflows and outflows of cash, which should break down into three separate parts: cash flow from operation, cash flow from investing activities, and cash flow from financing activities.
- The Notes to Financial Statements
Technically, there are only four types of financial statements for a business entity. The fifth category is notes to financial statements, or footnotes that are included on other types of financial statements. However, while these notes are not necessarily a type of financial statement on their own, they are so informative and so important that they still bear mentioning. Notes to financial statements must include specific disclosures, including details about the entity’s accounting policies, its income taxes, its employee pension plans or retirement programs, and its stock options.
As you can see, these statement reports all serve crucial roles. Separately, each type of financial statement gives a different snapshot of an entity’s financial reality at a particular point in time. Together, the statements give a full review of a company’s financial position during the reporting period in question. In terms of financial health, monitoring, reporting, control, transparency, and all other aspects of accounting, these statements and the information they provide are important and invaluable.