What are financial statements primarily used for?

Financial statements are primarily used to represent the financial position and results of operations of a company. They provide a structured and standardized way to communicate the financial health of a business to various stakeholders, including investors, creditors, and management.

The balance sheet, income statement, and cash flow statement are key components of financial statements. The balance sheet shows assets, liabilities, and equity, providing a snapshot of what the company owns and owes at a specific point in time. The income statement summarizes revenues and expenses over a period, highlighting the company’s profitability. The cash flow statement details the inflows and outflows of cash, which is crucial for understanding liquidity.

These statements serve as essential tools in decision-making processes, allowing stakeholders to analyze performance trends, assess risk, and make informed strategic decisions. In contrast, while tax filings are important, they do not provide a comprehensive view of financial performance, and internal policies or forecasts are not the primary functions of financial statements.