The three main financial statements are:
- The balance sheet—which reports a corporation's assets, liabilities, and stockholders' equity as of a point-in-time (e.g., as of midnight of March 31, 2013).
- The income statement—which reports a corporation's revenues and expenses for a period of time, such as a year, quarter, month, 52 weeks, 13 weeks, etc.
- The statement of cash flows (or cash flow statement)—which provides information on the change in a corporation's cash and cash equivalents during the same period of time as the income statement.
The financial statements that are distributed outside of a company need to be prepared in accordance with generally accepted accounting principles (GAAP). For example, the cost principle generally requires that the balance sheet should report long-lived assets at cost minus accumulated depreciation. The matching principle requires that the cost of long-lived assets used in the business be allocated to various accounting periods in which they generate revenues or are used up. Some costs are deferred to the balance sheet as assets and are expensed in subsequent periods because of the going concern principle and the matching principle. The financial statements are to reflect these basic accounting principles as well as the detailed accounting pronouncements of the Financial Accounting Standards Board (FASB).
When a corporation's stock is publicly traded, its financial statements must be audited by independent certified public accountants. These CPAs issue an audit report stating that the financial statements have been prepared in accordance with GAAP. The financial statements of some companies whose stock is not publicly traded might also be audited for the comfort of the owners and/or lenders.
Always keep in mind that financial statements report the results of past transactions. There is no assurance that the future transactions will be similar to the past transactions.