Skip main navigation

New offer! Get 30% off one whole year of Unlimited learning. Subscribe for just £249.99 £174.99. New subscribers only T&Cs apply

Find out more

What’s in a financial statement?

Watch this video for a short explanation of financial statements - what they are, and a few general principles about their structure and contents.
Financial statements are formal documents that report the financial position of a business or a public sector entity. Financial statements contain information about the composition of the wealth of a public sector organisation or a government, which is made up of assets that are owned by the entity, of liabilities that consist of debts of the entity, and of equity, that is the value of the organisation for its owners. Financial statements also provide information about the amount of new wealth that the entity produced in the past period, for example, in the last financial year.
Financial statements are effectively a collection of documents. First, we have the balance sheet, which contains information about assets, liabilities and equity of an entity. Second, we have the income statement, which is also called the income and expenditure statement or profit and loss account. This provides information about the sources of income and the costs incurred in a period in the past. In addition, financial statements can include other documents, such as, for example, the cash flow statement, which offers information about how much cash has been received and has been paid by an entity in a period in the past.
Financial statements are created by accountants based on information they receive on the activities and transactions of an entity in a period in the past. Activities and transactions include, for example, revenue earned from sales, costs incurred from salaries and wages, money borrowed from a bank and money invested in equipment. All activities and transactions are recorded through bookkeeping techniques, so financial statements are summary reports of all these accounting records.
Financial statements serve several purposes. They inform the owners of an entity about how well or badly the organisation has performed in the past in financial terms. On the basis of such information, the owners can decide, for example, whether they are happy with the present management team or not. Financial reports also provide information to various stakeholders. For example, they help creditors, such as banks, to assess whether the entity is financially solid.

Let’s use this step to start to explore financial statements.

Here, Dr Alberto Asquer explains what they are and outlines a few general principles about their structure and contents.

Remember, when you reach the end of a step and have understood everything, click the pink ‘Mark as Complete’ button at the bottom. This will update your progress page, and will help you to keep track of which steps you’ve done.

If you complete the majority of steps on the course, you will be eligible to purchase a Certificate of Achievement, a personalised certificate and transcript in both digital and printed formats, to prove what you’ve learnt. A Statement of Participation is also available.

Both are a great way to show your interest in the subject, your commitment to your career, or as evidence of Continuing Professional Development (CPD).

This article is from the free online

Understanding Public Financial Management: How Is Your Money Spent?

Created by
FutureLearn - Learning For Life

Reach your personal and professional goals

Unlock access to hundreds of expert online courses and degrees from top universities and educators to gain accredited qualifications and professional CV-building certificates.

Join over 18 million learners to launch, switch or build upon your career, all at your own pace, across a wide range of topic areas.

Start Learning now