Financial Statements

Financial Statements – Financial statements are formal reports that provide a clear picture of an entity’s financial position, performance, and cash flows over a specific period. They are used by investors, creditors, management, and regulators to assess the health and operational efficiency of a company, government, or organization. Key Components of Financial Statements: Balance Sheet: Shows the entity’s assets, liabilities, and equity at a specific point in time. Income Statement (Profit & Loss Statement): Reports revenues, expenses, and net profit or loss over a period. Statement of Retained Earnings: Tracks changes in retained earnings due to profits retained in the business or dividends paid. Cash Flow Statement: Summarizes cash inflows and outflows from operating, investing, and financing activities.

Key Point: Financial statements are essential for decision-making, performance evaluation, regulatory compliance, and investor confidence, providing transparency and accountability in financial reporting.

Example: A company’s income statement for FY 2022–23 shows a net profit of ₹50 lakh, while the balance sheet displays total assets of ₹5 crore and liabilities of ₹3 crore, helping stakeholders assess financial health.