Financial statements are formal records that provide an overview of a business’s financial activities and position. They are essential for stakeholders to assess the company’s performance and make informed decisions.

Characteristics
– Standardized Format: Financial statements follow generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), ensuring consistency and comparability.
– Periodic Reporting: They are typically prepared on a regular basis, such as quarterly or annually, to provide timely information.
– Comprehensive Overview: Financial statements include various aspects of a company’s financial health, such as income, expenses, assets, and liabilities.
– User-Focused: They cater to a range of users, including investors, creditors, management, and regulatory agencies.

Examples
– Balance Sheet: This statement provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time. For example, a balance sheet might show that a company has $500,000 in assets, $300,000 in liabilities, and $200,000 in equity.
– Income Statement: Also known as a profit and loss statement, it summarizes revenues, costs, and expenses over a specific period. For instance, an income statement might reveal that a company generated $1 million in revenue and incurred $700,000 in expenses, resulting in a net profit of $300,000.
– Cash Flow Statement: This statement tracks the flow of cash in and out of a business, highlighting operating, investing, and financing activities. An example could show that a company had $200,000 in cash from operating activities, $50,000 used for investing, and $30,000 from financing, resulting in a net cash increase of $120,000.