Financial reports are the documents that a business creates to formally record its financial activities. Maintaining the same standard format for these financial reports allows for proper time-series analysis of the data presented. This, in turn, enables a ready analysis of a business’s financial history, helping decision-makers to keep track of the business’s financial status and to determine what is in the best future interests of the business .Apart from the role they play in assisting businesses to manage their financial affairs, financial reports have to be prepared for auditing or tax purposes.
The three main types of financial report are:
- the balance sheet: which report on the assets, equity and liabilities of the business
- the income statement: which sets out the business’s income, expenses and profit or loss over a set period of time
- the statement of cash flows: which shows outgoing and incoming cash flow, including cash used in the business’s operating activities, as well as its investing activities (such as cash flowing from the sale of a major asset) and financing activities (such as interest payments).
These reports should all adhere to generally accepted accounting principles. Businesses that are larger companies may be required to produce additional financial reports to set out their financial information.
Financial reports are produced throughout the lifespan of business, including the estimated reports created during the planning phases of a new business, and the final reports created during its closing-up stages.
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