What Is a Finance Statement?

A finance statement or a financial statement is a written record that demonstrates the different business activities and the financial performance, status, and reputation of an organization. Financial statements go through auditing from government agencies, accountants, accounting firms, and other financing institutions to ensure the accuracy of their content, including the tax, financing, and investing activities. Investors and financial analysts utilize and rely on the financial data from the financial statements to analyze the performance of an organization. They also produce predictions of the trends and future direction of a business, including its stock price. A business annual report, which is one the most vital resources of reliable and audited financial information, contains the financial statements and reports of the organization. Investors, financial analysts, market analysts, creditors, and credit agencies utilize financial statements to evaluate the financial health and earnings potential of a specific organization. A financial statement is a critical document that a company must create with accuracy to gain the support of government agencies, creditors, and other stakeholders to invest in the company.

According to information coming from the United States Census Bureau and their financial report that targets the manufacturing, mining, wholesale trade, and selected service industries in the United States during the fourth quarter of 2021, these corporations’ after-tax profits result in an estimated amount of up to 271.2 billion US dollars. It means that these industries continue to thrive and that individuals, organizations, and other industries can invest in them and guarantee that their investments will not go to waste.

Types of a Finance Statements

Finance statements or financial statements are a collection of summary-level reports regarding an organization’s financial status, results, positions, and cash flows. Financial statements have three main components, namely, a balance sheet, an income statement, and a cash flow statement. These elements ensure that the persons reading the financial statements, especially stakeholders, have an idea and understanding of how money and any financial assets move around the organization for it to acquire revenue. The section below covers the different types of financial statements with accompanying descriptions for readers to have a better knowledge of them and their relevance to business operations.

Balance sheet: A balance sheet provides detailed information about the assets, liabilities, and the shareholder’s equity of the company. Assets refer to the things and materials companies own that have a monetary value. It means that these items companies can either sell or use these assets to develop products or provide services to their consumers. Assets include physical properties, including plants, trucks, inventory, equipment, supplies, and machinery. It also includes intangible assets that exist and has value, such as company copyrights, patents, and trademarks. Ther types of assets include on-hand cash and company investments. Liabilities refer to the amount of money that a company owes other entities. It comprises all obligations the company makes, including loans and borrowed money from banks for the launch of projects and programs, the rental fees for the use of property, owed money to suppliers and vendors, employee payroll that the company owes its workers, costs for environmental cleanup, and mandatory taxes owed to the government. Liabilities also consist of the obligations that provide goods or services to the customers in the future. Shareholders’ equity also refers to the capital and net worth of companies. It is the money left when a company sells all its assets and accomplishes the payment of all its liabilities. The leftover money belongs to the shareholders and owners of the company. A balance sheet incorporates assets according to their efficiency in terms of cash conversions. Current assets are items that the company expects to convert to cash within a year, and a good example of this is inventory. Noncurrent assets are items that a company does not expect cash conversion within a year or longer than a year. Noncurrent assets include fixed assets, and these assets enable business operations that are not for sale, including office furniture and furnishings. On the other hand, liabilities appear on the balance sheet according to their due dates. The liabilities that must be on the balance sheet are current and long-term. Current liabilities refer to obligations that the company expects to pay off in a year, while long-term liabilities are those that are due more than a year away. Meanwhile, shareholder’s equity is the invested amount the owners give to the company in stocks while subtracting the losses and earnings of the organization at the beginning of operations. Other companies distribute earnings instead of keeping them, called dividends. The balance sheet shows a snapshot of these three elements at the end of a reporting period.Income statement: An income statement is a document that demonstrates how much a company earns in revenue for a specific period. An income statement also covers the costs and expenses linked to acquiring company revenue. It contains the net earnings and losses of an organization. Income statements also cover report earnings per share. What is earnings per share (EPS)? It calculates how the company plans to distribute its earnings to different stakeholders if and when the company decides so for a specific period. The setup of income statements starts from the top with a figure consisting of the total amount of sales for a set period, going down a step at a time while making the necessary adjustments along the way. The total amount of money the organization has at the top portion of the income statement is the gross revenue or the gross income. Gross pertains to expenses that have no deductions yet. The next line of the income statement describes the due for sales amounts from the sales discounts or merchandise returns. After subtracting these sales amounts from the gross revenue, the company ends up with the net income resulting from these deductions. Down the net income line, several parts pertain to different operating expenses. It shows the cost of sales and represents the amount that the company spends when producing products or performing services to consumers within the reporting period. The next part of the income statement talks about the gross profit from the difference between the net revenue and the cost of sales. There are specific expenses that companies cannot deduct from the revenue. The next section talks about operating expenses. Operating expenses refer to the costs to execute daily tasks and operations for a set period. It is different from the cost of sales because operating expenses do not directly affect the production of products or services. Gross profit also has deductions from depreciation. Depreciation takes into account the wear and tear of some items and equipment, including materials, machinery, supplies, tools, and furniture. Many companies spread these costs over different periods that the company utilizes, and the process is called amortization or depreciation. After the deduction of the operating expenses, the operating profit comes to light without the deductions from interests and taxes. Companies must compute the interest income and expenses. Interest income stems from bank savings accounts, and money markets, while interest expenses come from the money that companies pay for the interest from loans and borrowed credit. Make sure to subtract these interest amounts before the tax deductions. Lastly, the company deducts tax payments to acquire the net profit amount. The net profit or revenue includes the losses and earnings of a company for a reporting period. Many income statements also contain the earnings per share calculations that represent how much money shareholders receive for each share of the stock they own in the company if the company distributes all its net income for a specific period. Cash flow statement: Cash flow statements are reports that contain information about the stream of cash in an organization. This document is significant because it makes sure that the company has enough cash on hand to pay for expenses or to purchase assets. Cash flow statements demonstrate whether the company generates cash for a given period. The statement also shows changes over time instead of precise amounts for a specific time. It utilizes and reorders information from the balance sheet and income statement. Cash flow statements demonstrate the fluctuations of net income in cash for a period. Cash flow statements have three primary divisions: operating, investing, and financing activities. Operating activities analyze the cash flow of the company from income and losses. This section of the cash flow statement reconciles the net income to the received cash by making the necessary adjustments for non-cash items, adjusting according to the used or provided cash by assets and liabilities. The second section of the cash flow statement includes cash from investing activities, including the purchase of long-term assets and investment securities. The third part of the cash flow statement demonstrates the cash flow from all financing activities. These sources of cash flow include cash from selling and acquiring stocks and bonds or from bank loans. Similarly, paying for these loans is also an example of using cash and reflects in the cash flow statement.

How To Write a Finance Statement

At the present age, a specific software can prepare the necessary elements the organization needs in a financial statement that reduces human error while saving time. Using a specific program keeps track of the pending transactions of the business. It includes business spending and profits to automate the process of creating financial statements. Whether the project manager or supervisor opts to use software, it is still necessary to understand how to create and read the document to ensure that readers can draw out conclusions from its contents. The section below provides a helpful guide on how to write a finance statement.

  • 1. Determine the Necessary Information that the Financial Statement Must Contain

    The first step to creating the financial statement is to think about the information you wish to include in the document and what you want to communicate with your audience. For example, you want your audience to have a visual representation of the amount of money flowing in and out of the organization for a specific period. In this case, you need to provide a cash flow statement to fit your needs and the requirements. Consider the information that you want the document to have in the financial statement to help identify and select the best format for writing the document suitable to your needs.

  • 2. Select the Type of Financial Statement the Company Needs

    As stated above, there are different types of financial statements that an organization can utilize. Each one provides various perspectives on the financial health and status of the business. Balance sheets detail the assets and liabilities of an organization to gauge equity and profitability. The income statement or the profit and loss statement presents information about the revenues and expenses of the business. An income statement consists of gross profit, operating expenses, non-operating expenses, and net profit. A cash flow statement represents the money that comes in and goes out of the company. The cash flow demonstrates the difference between cash values. It is the best document to represent the changes in the cash flow over a specific period. The cash flow statement must contain the revenue, spending, and total amount for a reporting period. A shareholder’s equity statement comes from a balance sheet to represent the shareholder stock sales and purchases. The values that must be available in the shareholder’s equity statement include common stock, treasury stock, preferred stock, and retained earnings.

  • 3. Format the Financial Statement Accordingly

    Financial statements are easy to read and understand, presenting all the information clearly and accurately. Computer software incorporates and considers the proper formatting standards into the financial statement to achieve a clear and concise document. Make sure that the font size is large enough for easy reading and small enough to not overwhelm the reader. Incorporating some color into a financial statement makes it more attractive to readers and allows it to emphasize significant information while keeping in mind to be conservative with the colors you use. Make sure to denote each section of the financial statement for readability.


What are the five components of a financial statement?

To have a deeper understanding of a financial statement, it is necessary to identify and understand its five components. It includes assets, liabilities, equity, revenue, and expenses.

What are the basic financial statements that businesses use?

The four financial statements that businesses often use for their financing needs include income statements, balance sheets, cash flow statements, and statements of retained earnings.

What is the difference between a balance sheet and a trial balance?

The principal difference between the two is that the trial balance contains the ending balance for each account, while the balance sheet summarizes the amount balances for each item line. There is also a standard format for writing a balance sheet compared to a trial balance. Balance sheets serve external purposes, while trial balances are mostly internal, used by the accounting department and organization auditors.

Financial statements are vital documents that businesses use when interacting, communicating, and collaborating within and outside the organization. Since there are various types of financial statements, the accounting and project management teams must know the most appropriate document for given situations. Make sure that the information that you provide in the financial statement you choose is appropriate to the requirements of clients and stakeholders. The content of the finance statement must be easy to understand and interpret. Construct a comprehensive finance statement by downloading a template from the 7+ SAMPLE Finance Statement in PDF | MS Word, only from Sample.net.