Financial statements are records of all financial activities of a company and are prepared in a structured manner so as to be easily understood. Or otherwise, financial statements are short documents that present the income information for a business at any given point in time. Financial statements are therefore generated several times throughout the year to provide accountants and financial advisors and planners within the business with financial information, so they can plan and budget accordingly. Owners and managers also require financial statements to make important business decisions that affect its continued operations.A financial report, also often referred to as financial reporting or annual report contains much more than mere financial statements though the basic purpose is to provide all relevant information about the company to all stakeholders. It is also a large collective document that summarizes the financial spending and earning of a given business over the duration of a single year.
Once a year, normally at the end of the fiscal year, all of the financial statements are added up to create the income information for a financial report. Company owners use the financial reports as a method of attracting potential investors, shareholders and stockholders to the business. Since the financial report is a compilation of several financial statements for a given year, the investors and holders are able to see the changes in the company’s net worth, statements in cash flow and an operational balance sheet.This table shows whether to provide general purpose of financial statements or a special purpose of financial reports according to the business.A general purpose of financial report should include:• A statement of accounting policies• A statement of financial position (balance sheet)• A statement of movements in equity• The notes of the financial statement should state how each type of funding has been spent (if a service has received more than one type of funding).A special purpose of financial statement should include:• A statement of accounting policies• Information on how the funding has been spentTo conclude, financial statements present clear cut terms and numbers, financial position, performance in the past and changes in financial positions of a company that are necessary for shareholders and investors.
These financial statements are transparent, easily understood and comparable to similar organizations. All assets, liabilities, profits and expenditures must be easily accessible from these financial statements. But financial report presents a broader picture about the company than mere financial numbers. Financial report is like a result card of a student issued at the end of the year when he has taken all examinations.
It does include financial statements, the statement of income, profit and loss account, the statement of changes in equity as well as the statement of cash flows. Therefore, financial statements are a prerequisite for financial reporting. Financial reporting is the whole process of reporting the financial activities of the firm to the external and internal customers and financial reporting is done by making financial statement. Financial reporting has a broader scope and it includes a letter from the CEO of the company, details about new products and services, plans for the future, introduction of the directors and the management team. Majority of financial reports are for internal purposes.
It also discusses products, new markets; strategies and direction that a company proposes to take in future apart from all the financial data.