Financial Statement Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Financial Statement, written in plain English, along with examples of how it is used.

What is Financial Statement?

History and Meaning of Financial Statement

A financial statement is a formal record of an organization's financial activities, summarizing a company's assets, liabilities, and equity for a specific period. It provides critical insights into the health and progress of the organization. The first formal use of financial statements began in the 19th century as corporations grew more prominent, and shareholders demanded more transparency into how their investments were performing. The success of this practice led financial statements to become a necessary tool for companies of all sizes to communicate their financial position and health.

Financial statements are essential to investors, creditors, government agencies, management, and other stakeholders, as they rely on these documents to make financial decisions.

Examples of Financial Statement

1. A company's end-of-year financial statement showed that the profit margins were high, suggesting that the business was profitable.

2. The accountant reviews the financial statement to ensure that the company's financial information is accurate.

3. Before investing in a company, an investor should review the financial statement to understand the potential risks and returns.

Legal Terms Similar to Financial Statement

1. Balance Sheet - A financial statement that summarizes a company's assets, liabilities, and equity at a specific moment.
2. Income Statement - A financial statement summarizing a company's revenue and expenses for a set period.
3. Statement of Cash Flows - A financial statement that summarises the flow of cash in and out of a company during a specific accounting period.