The information of all the business activities provided in a prescribed format by the company is known as Financial Statements. It is a formal record that provides the detail of all the financial activities of a business. Financial Statements are records through which we understand the financial condition of an organization. The Company usually prepares the financial statement on a monthly basis. A listed company needs to present its financial statement to the stakeholders on a quarterly basis. Financial Statements includes

• Balance Sheet
• Income Statement
• Statement of Retained Earnings
• Statement of Cash Flows

Balance Sheet- This statement summarizes the assets, liabilities and capital of a firm or an individual at a particular time period. The balance sheet indicates the current financial condition of a company. The assets are recorded on the left side of the statement and liabilities and net worth on the right side of the sheet. In basic terms, a balance sheet will show what assets and liabilities the company has and how it raises it capital by issuing equity or debt.

Income Statement- This statement primarily shows the earnings or profit of a company at a specific period of time. This statement accounts the revenue generated from the sale of good and services and the various expenses incurred to generate the revenues. It is also commonly known as Profit and Loss statement. The purpose of the income statement is to show the management and investors the top line and bottom line of a company during a particular period.

Statement of Retained Earnings-This statement indicates the change in retained earnings for a specified period. Retained Earning is the net income after deducting dividend paid. This is also known as accumulated earnings or earned surplus. Retained earnings are commonly used for reinvestment purpose like replacement of fixed assets and expansion projects.

Statement of Cash Flows-This statement basically reveals the inflow and outflow of cash. It illustrates from where a company’s cash arise and where it is used during a specific period of time. The cash flow statement is divided into three activities operating, investing, and financing activities.

Purpose of Financial Statements

• Financial Statement is primarily used to evaluate the financial condition of an organization.
• This Statement is required to file tax return.
• Financial Statements is a vital source of information for a broad range of users. This helps to increase the credit worthiness of a company.
• A strong financial will help the company to raise additional capital from the market.
• Management make decisions on future prospects on the basis of past financial statements.