The terms “financial reporting” and “financial statements” are often interchanged in the workplace. Both terms have some similarities, but financial reporting encompasses a much broader and detailed definition. Both the financial report and the individual statements play a role in creating the annual financial data report that investors and shareholders read as part of their financial research.
Financial statements are short documents that present the income information for a business at any given point in time. The financial information will show a current balance sheet in terms of income, changes in the overall worth of the company based in income and a cash flow statement that shows where the funds are coming from. A financial statement does not include information about expenses or purchases.
A financial report, also often referred to as financial reporting or annual report, is a large collective document that summarizes the financial spending and earning of a given business over the duration of a single year. It combines both the earnings of the income statements, provides an overlook of the net worth and shows the business’ spending and expenses in great detail. It also provides a personal letter from the CEO or owner, along with a short predictions chapter that presents any direct plans to increase profits or increasing the net worth.
Financial statements provide financial data and information on the spot. Financial statements are therefore generated several times throughout the year to provide accountants and financial advisors and planners within the business with financial information, so they can plan and budget accordingly. Once a year, normally at the end of the fiscal year, all of the financial statements are added up to create the income information for a financial report. Since the financial statements only provide the income of the business, the creator must gather the expense information from purchases and expense budgets to complete the financial report.
Company owners use the financial reports as a method of attracting potential investors, shareholders and stockholders to the business. Since the financial report is a compilation of several financial statements for a given year, the investors and holders are able to see the changes in the company’s net worth, statements in cash flow and an operational balance sheet. In other words, the investors are able to track all of the funds and cash within the business and identify how and where it is being spent and earned.