Financial statements are the statements or reports prepared by management or the board of directors of a company to show the financial position, financial performance, their changes as well as cash flow of a particular business organization or a combination of businesses.
A financial statement can be compared to a school result. After graduating from college a result will be presented to you to show how well and how far you go when in school. Such results are used to know if a student passes through school or the school passes through him or her.
A financial statement is a core part of every business. How did your business fares during a particular period can be measured by just saying you earn a particular amount of revenue. Other factors may have affected such revenue within that period of time which may have diminished the revenue. A financial statement pinpoints all these areas and provides a comprehensive income for the business in that period.
Generally, a set of financial statements includes a statement of profit or loss and other comprehensive income, a statement of financial position, a statement of changes in equity, and a statement of cash flow.