What is a financial statement?

Financial statement? (definition)

A financial statement is a report that shows the financial activities and performance of a business.

There are four main types of financial statement:

1. Balance sheet: a snapshot of your business’s financial condition at a single point in time, such as 12/31/2016. Shows your business assets, liabilities and owner's equity at that time.

2. Profit and loss statement: also called an income statement. Shows your business’s revenues, costs and expenses over a period of time, such as 1/1/2016 to 12/31/2016.

3. Cash flow statement: also called a statement of cash flows. Shows changes to the cash coming into and out of your business over a period of time. Only records cash (not all income). Shows whether you can cover short term expenses like bills and payroll.

4. Statement of changes in equity: also called a statement of retained earnings. Shows changes in the equity of your business for a set time period. In other words, changes in how much money your business keeps (rather than pays out to shareholders).

Combined, these statements provide a good view of the financial health of your business.

See related terms

Business accounting

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Disclaimer: This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.