Financial Statements Quiz

Financial Statements: An Overview

• Financial statements are formal records of the financial position and activities of a business, person, or other entity.
• There are four basic financial statements: balance sheet, income statement, statement of changes in equity, and cash flow statement. They are accompanied by a management discussion and analysis.
• Financial statements should be understandable, relevant, reliable, and comparable. They are intended to provide information about an enterprise's financial position, performance, and changes in financial position.
• Consolidated financial statements represent the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as a single economic entity.
• Government financial statements may use accrual accounting, cost accounting, or a combination of both, and have a different chart of accounts than profit-oriented businesses.
• Personal financial statements may be required for personal loans or financial aid.
• Audits of financial statements are usually required for investment, financing, and tax purposes and are performed by independent accountants or auditing firms. Auditors may owe a legal duty of care to shareholders, but liability may be limited.
• Generally Accepted Accounting Principles (GAAP) are used to ensure uniformity and comparability between financial statements prepared by different companies. International Financial Reporting Standards (IFRS) are also used in some countries.
• Annual reports are used to communicate with shareholders and may include a letter from the company's CEO and attractive graphics and photos.
• Notes to financial statements provide additional information on specific items in the statements and support valuations.
• Management discussion and analysis (MD&A) provides a narrative explanation of how an entity has performed in the past, its financial condition, and its future prospects.
• Financial statements are increasingly being created in electronic form, with PDF, HTML, and XBRL being common formats.