Short definition: Financial statements are formal records that summarize the financial activities and position of a business, individual, or other entity.
Explanation: These statements provide a snapshot of an entity’s financial health and performance over a specific period. They are essential tools for investors, creditors, and other stakeholders to assess an entity’s financial performance, profitability, and liquidity.
Example: The main types of financial statements include the balance sheet, income statement, and cash flow statement. The balance sheet shows a company’s assets, liabilities, and equity at a particular point in time, while the income statement reports a company’s revenues and expenses over a period. The cash flow statement tracks the flow of cash in and out of a company.
Additional information (optional): Financial statements are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). They are audited by independent accountants to ensure their accuracy and reliability.