A financial statement (or financial report) is a record of the financial activities of a business or other entity.
In the private sector (including non-profit/not-for-profit entities) there are four basic financial statements: the balance sheet, the income statement, the statement of retained earnings, and the statement of cash flows (in some entities different terms may be used). The statements (including the format) may be specified by law or regulation. Larger companies will also include extensive footnotes (some of which are required by law or regulation) as well as a management discussion and analysis of their contents.
Governmental entities have similar statements, but often differ due to specific and unique requirements.
The balance sheet summarizes the financial balances of the entity as of a specific period in time (usually as of the end of the entity's fiscal year).
Assets are listed first, followed by liabilities; the difference between the two is the equity or net worth of the entity.
Assets and liabilities are classified as current and non-current.
- Current assets are those which are cash or are highly liquid (i.e., can easily be converted to cash); these include short-term investments (such as certificate of deposits), accounts receivable, inventories, and prepaid expenses.
- Non-current assets include property, plant, and equipment (less amounts for accumulated depreciation and amortization), and long-term investments (such as loans made to other entities).
- For non-profit/not-for-profit entities, this category includes assets which are restricted for use (usually for a specific purpose). The restriction can either be by the donor, or the entity can choose to restrict the asset's use; either way it must be shown separately from unrestricted assets.
- Current liabilities are those which are expected to be paid within one year or less; these include accounts payable, taxes currently due, and the current portion of long-term liabilities.
- Non-current liabilities include capital leases and mortgages (excluding the portion due within the current year).
The equity section of the balance sheet includes:
- The amounts for the company's share capital (usually sale of stock; this includes both the "par value" of the stock and any amounts received in excess of par value), adjusted for treasury shares (stock shares held by the corporation)
- Minority (non-controlling) interest in other entities
- Retained earnings (the amounts earned by the company from its operations)