Annual Financial Statements

What are Annual Financial Statements?

Annual Financial Statements refers to the annual presentation of the financial performance of the entity and comprises a Balance Sheet, Statement of Profit and Loss, Statement of changes in equity, Cash flow statement, and Notes to the financial statements. Annual Financial statements are prepared on a going concern basis unless management intends to wind up the operations of the entity under the accrual basis of accounting.

The fundamental purpose of financial statements is to provide information to the stakeholders that are useful for making economic and financial decisions about the business.

Constituents of Annual Financial Statements

The annual financial statements consist of the following five statements:

Annual Financial Statements

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For eg:
Source: Annual Financial Statements (wallstreetmojo.com)

#1 – Balance Sheet

The balance sheet presents the financial position of an entity at a specific point in time. IAS 1 “Presentation of Financial Statements,” require presentation of the following items on the face of the balance sheet as a minimum requirement:

#2 – Statement of Profit and Loss

The income statement is prepared for reporting the financial performance of the entity during the year. The accounting could be the calendar year or fiscal year, depending upon the accounting policyAccounting PolicyAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level.read more followed by the entity.

The minimum items to be presented on the face of the income statement as per IAS 1 “Presentation of Financial Statements,” as are:

#3 – Cash Flow Statement

All entities that prepare their annual financial statements in line with IFRS or IAS are required to present the cash flow statementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more as part of annual financial statements. The cash flow statement reports the changes in cash and cash equivalents during the year due to operational, financing, and investing activities.

#4 – Statement of Changes in Equity

This includes the following:

#5 – Notes to Financial Statement

Notes to the financial statements are an integral part of financial statements and include:

Sample Annual Financial Statements

For illustration purposes, let’s take a look at the sample annual financial statement of Apple Inc.

#1 – Balance Sheet

Balance Sheet

#2 – Income Statement

Specimen Annual Financial Statement (Income Statements)

#3 – Statement of Changes in Equity

Statement of changes in equity

#4 – Cash Flow Statement

Specimen Annual Financial Statement - Cash Flow Statement

Source: https://sec.report/

Important Points

Conclusion

Annual Financial statements report the financial position and performance of the entity for a specified period of 12 months. Such information is used by management, investors, lenders, and creditors to analyze the financial position of the entity to take important economic and financial decisions for the future growth of the entity.

This has been a guide to Annual Financial Statements. Here we discuss the five constituents of annual financial statements – Statement of Profit and Loss, Cash Flow Statement, Statement of Changes in Equity, and Notes to Financial Statements along with examples. You may learn more about basic accounting from the following articles –

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