What are financial statements?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Financial statements are the formal reports that summarise a business's finances from its books. They usually include a profit and loss statement showing performance over a period, a balance sheet showing what the business owns and owes at a date, and a cash flow statement showing the cash that came in and went out.
Each statement answers a different question. The profit and loss statement asks whether the business made money, the balance sheet asks what it owns and owes, and the cash flow statement asks where the cash went. Read together, they explain things none of them shows alone, such as a profitable year in which the bank balance fell.
The statements are built from the general ledger. Once the period's transactions are entered and the bank and card accounts are reconciled, the account balances are listed in a trial balance and then grouped into the statements. Any error in the books flows straight through, so the statements are only as reliable as the records behind them.
Statements prepared during the year, often monthly or quarterly, help the owner run the business. Statements for the full financial year give the complete picture, and are usually prepared or finalised with your accountant.
In Australia
business.gov.au's glossary describes a financial statement as a summary of a business's finances over a set period, and lists the profit and loss statement, balance sheet and cash flow statement among the kinds it can take. It lists preparing financial statements among the things your accountant can do, and says a bookkeeper may prepare some of them.
Among other things, section 286 of the Corporations Act 2001 requires a company's financial records to be good enough for true and fair financial statements to be prepared from them and audited. The Act's definition of financial records, in section 9, also takes in the working papers that show how the statements were put together.
business.gov.au's guide to valuing a business suggests having financial statements for the last 5 years ready if possible, and says showing likely future profit through your financial statements can help when seeking finance or a buyer.
Worked example
| Figure | Where it appears | Amount (AUD) |
|---|---|---|
| Net profit for the year | Profit and loss statement | 18,750.00 |
| Cash at bank on 1 July | Opening balance sheet | 6,000.00 |
| Net increase in cash for the year | Cash flow statement | 4,200.00 |
| Cash at bank on 30 June | Closing balance sheet | 10,200.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Producing statements before every bank and card account is reconciled, so errors go straight into the reports.
- Reading the profit and loss statement alone and missing a fall in cash that the other two statements would have shown.
- Leaving estimated figures unlabelled, so a reader cannot tell them apart from actual results.
- Comparing statements from different periods or dates as if they covered the same ground.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Get help with your finances
business.gov.au, Australian Government. Current at 16 October 2026, released 20 February 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Corporations Act 2001, sections 9 and 286
Federal Register of Legislation, Office of Parliamentary Counsel. Compilation No. 149, 19 September 2026, released 19 September 2026. Checked 15 October 2026.
Based on content from the Federal Register of Legislation at 15 October 2026. For the latest information on Australian Government legislation please go to https://www.legislation.gov.au. Licence: CC BY 4.0.
- Value your business
business.gov.au, Australian Government. Current at 16 October 2026, released 11 July 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.