At a Glance
Financial statements are a set of documents showing the financial status of a company for a duration of say, a year. The information contained in these statements include how much money the business has made and spent (income statement), what the business owns compared to its debts (balance sheet), and more.
There are four main types of financial statements, but a big focus tends to be placed on the income statement and the balance sheet.
The two other statements - statement of changes in shareholder's equity and cash flow statements are equally vital.
A Simple Example
What financial statements say about your business
Your financial statements give you a clear picture of your operations. They allow you to judge current and future performance.
Lenders also rely on these statements to measure your ability to acquire and repay your business loans, and potential investors will express interest in your business depending on how impressive your financials look.
But impressive financial statements start with the basics: driving revenue numbers up, maintaining low operating expenses, and growing your business using portions of your profits as well as other sources. All these require a solid accounting structure in place, otherwise, you may never have a true picture of your business operations.