Financial reports

In the United States, publicly owned businesses are required by law to issue financial reports. These reports are used by investors; officials of banks, government agencies, and labor unions; and others interested in a firm or its industry. Accountants prepare the reports, which provide summaries of a company’s financial condition. Most companies issue quarterly reports. All firms use similar accounting procedures so that the reports can be compared. In the United States, the Financial Accounting Standards Board (FASB), a group of professional accountants, establishes these procedures, which are called accounting principles.

The most important financial reports include balance sheets, income statements, and statements of cash flows. A balance sheet shows a company’s assets, liabilities, and net worth. An income statement is a report of a firm’s revenue and expenses during a certain period. A statement of cash flows shows whether the company had a net profit or a net loss for that period. A statement of cash flows shows the amounts of money flowing into a company and out of it as a result of its operating, investing, and financing activities.

Organizations that do not seek a profit need many of the same kinds of financial reports. For example, private schools must keep track of their tuition income and their expenses. A government agency may wish to compare the cost of a program with the benefits. Possible donors to a charity may like to see how previous donations were used.