An Introduction to Financial Statements (AQA GCSE Business)

The Purpose & Importance of Financial Statements

• Business produce a range of financial statements each year in order to

  • Meet legal requirements

    • Companies must submit financial statements to Companies House each year

  • Support decision making

    • Managers use financial statements to measure performance and set objectives

  • Communicate with stakeholders

    • Shareholders use financial statements to assess the performance of their investment

    • Employees, suppliers and lenders use financial statements to determine the stability of the business

• The two most important financial statements are:

  • The Income Statement

  • The Statement of Financial Position

Diagram: The income statement and the statement of financial position

The two main financial statements are the income statement and the statement of financial position

The income statement

• This statement summarises business income and costs, and identifies the profit or loss made over a period of time (usually a year)

The statement of financial position

• This statement identifies business assets and liabilities, and identifies the capital used to fund the business at a specific point in time