Types of Different Business Financial Statements
Business financial statements show where a company's money came from, where it went and where it is now. Owners and CEOs use these statements to manage a business, bankers to check its creditworthiness and investors to gauge its potential for dividends and growth. Financial statements must be accurate, reliable and timely. "Types" of financial statements can refer both to the kind of information they contain and how rigorously they are prepared, according to Generally Accepted Accounting Principles, or GAAP.
Other People Are Reading
-
Financial Statements by Information Type
-
The balance sheet provides a snapshot of the company's financial position at a point in time, such as year-end. It shows what the company owns (assets) and what it owes (liabilities and net worth) at that point in time. The "bottom line" of a balance sheet is always assets = liabilities + net worth. An income statement shows how much revenue a company earned over an accounting period, such as a year or a quarter, and the costs and expenses associated with earning that revenue. The income statement's "bottom line" shows whether the business was profitable or lost money for the period. The statement of cash flows summarizes a company's "lifeblood," its cash inflows and outflows during a given accounting period, indicating whether cash holdings increased or decreased. Businesses generate cash from operating, investing and financing activities and require it for paying expenses, repaying loans and purchasing assets. The statement of owner's equity explains changes in retained earnings during the accounting period in question. Retained earnings appear on the balance sheet and represent the difference between retained income and withdrawals or dividends.
Financial Statements by GAAP Type
-
Internal financial statements are those prepared by the company and are considered of "lowest" quality in the GAAP hierarchy. While internal statements may suffice for management purposes, bankers and investors cannot prudently rely on them. Compiled financial statements are those prepared by a Certified Public Accountant (CPA); however, they rely solely on information provided by the business client. Because they are CPA-prepared, banks and other lenders look on them more favorably, but not by much since they give no assurance about the underlying information's integrity. Reviewed financial statements are one step up from compiled statements because the CPA performs detailed inquiries into transactions and records and applies analytical procedures not done in a compilation. These reviews are more expensive because of the extra work involved; lenders generally feel more comfortable with them than compilations. Audited financial statements are at the top of the hierarchy because the preparing CPA vouches formally that they conform entirely to GAAP. All publicly-held companies are required to file audited annual and interim financial statements with the Securities and Exchange Commission (SEC). They are expensive. Private companies need at at least three years' worth of audited financial statements if they have many shareholders, or the owners want to sell the business, obtain credit or take the company public.
-
Financial Statement Frequency
-
Businesses should publish at least annual financial statements and quarterly interim updates. Projected financial statements, also called "pro formas," take historical financial statements as their starting point and make highly educated guesses about the business' future. They can be useful in strategic planning and discussions with creditors and investors.
-
References
Resources
- Photo Credit financial report image by PaulPaladin from Fotolia.com
