What Are Financial Statements

In some form or fashion, financial statements are prepared for public and private companies, for-profit and not-for-profit organizations, government agencies, sole proprietorships, partnerships, and corporations. The SEC requires public companies to submit financial reports, though most organizations prepare them in order to attract investors or borrow money. Financial statements are also necessary if the company is being acquired. 

Financial statements have four components that provide a picture of a company s financial standing. These components include  

Individually, each piece provides specific information about the finances of a company and can help people make sense of the complexities of a company s financial standing. Annually, public corporations communicate financial information to their stockholders and other stakeholders through annual reports (fO-K), quarterly reports (10-Q), and current reports (8-K). However, this picture is not always clear unless one has a thorough understanding of financial statements. 

Financial statements are included in a company s annual report, which may or may not coincide with the calendar year. The fiscal year for The Walt Disney Company begins in October and ends in September. Companies may decide a fiscal year that does not align with the calendar year as more appropriate, considering their industry. Companies may want to remove the negative seasonal effects and end on a high note, where reported revenue is high or when the purchase of inventory is low. As an example, Target Corporation s fiscal year ends on the Saturday nearest January 31. One can infer this is because all the revenue and reconciliation of returned merchandise have been accounted for after the holiday season. Since the busy season is over, the accountants and staff are available to close the books. 

The Financial Accounting Standards Board (FASB) has developed standards and practices that make financial reporting consistent with 

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