The main financial statements of a U.S. corporation are:

  • Income statement (reports a corporation's revenues and expenses for a period of time, such as a year, quarter, month, 52 weeks, 13 weeks, etc.)

  • Statement of comprehensive income (reports the combination of the net income from the income statement plus items such as gains or losses on hedging transactions, foreign currency translation adjustments, and a few others)

  • Balance sheet (reports a corporation's assets, liabilities, and stockholders' equity as of a point-in-time, such as midnight of December 31)

  • Statement of stockholders' equity (summarizes the changes that occurred to the various components of stockholders' equity)

  • Statement of cash flows or cash flow statement (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 must 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 that are found in the Financial Accounting Standards Board's accounting Standards Codification.

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.