{"id":280249,"date":"2024-07-08T18:31:19","date_gmt":"2024-07-08T06:31:19","guid":{"rendered":"https:\/\/www.reckon.com\/nz\/?post_type=sbh&#038;p=280249"},"modified":"2025-01-30T17:25:43","modified_gmt":"2025-01-30T05:25:43","slug":"financial-statement","status":"publish","type":"sbh","link":"https:\/\/www.reckon.com\/nz\/small-business-resources\/financial-information\/financial-statement\/","title":{"rendered":"What is a financial statement?"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; custom_padding_last_edited=&#8221;on|phone&#8221; _builder_version=&#8221;4.23&#8243; custom_padding_tablet=&#8221;&#8221; custom_padding_phone=&#8221;0px||||false|false&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row column_structure=&#8221;1_3,2_3&#8243; _builder_version=&#8221;4.23&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; width=&#8221;100%&#8221; custom_padding=&#8221;||0px||false|false&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;table-contents&#8221; _builder_version=&#8221;4.23&#8243; background_color=&#8221;#f4f4f4&#8243; custom_padding=&#8221;25px||25px||true|false&#8221; sticky_position=&#8221;top&#8221; sticky_limit_bottom=&#8221;section&#8221; sticky_position_tablet=&#8221;top&#8221; sticky_position_phone=&#8221;none&#8221; sticky_position_last_edited=&#8221;on|desktop&#8221; pac_dcm_carousel_specific_module_num=&#8221;0&#8243; border_radii=&#8221;on|24px|24px|24px|24px&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.23&#8243; text_font=&#8221;||||||||&#8221; global_colors_info=&#8221;{}&#8221; background__hover_enabled=&#8221;on|desktop&#8221;][\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;2_3&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; pac_dcm_carousel_specific_module_num=&#8221;0&#8243; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text admin_label=&#8221;Copy paste body text here&#8221; _builder_version=&#8221;4.27.4&#8243; header_2_font_size=&#8221;32px&#8221; header_2_font_size_tablet=&#8221;30px&#8221; header_2_font_size_phone=&#8221;26px&#8221; header_2_font_size_last_edited=&#8221;on|tablet&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p><span style=\"font-weight: 400;\">Fledgling business owners must quickly learn about compliance and tax, but will find themselves asking an important question: what is a financial statement?\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Familiarising yourself with all the types of financial statements is essential to New Zealand businesses and their success.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, what are they? Simply, a financial statement is a formal document designed to convey the financial activity of a business to determine its health.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A financial statement is often viewed and dissected by:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">financial advisors<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">tax experts<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">shareholders<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">prospective business purchasers<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">NZ government agencies\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The purpose of creating a financial statement is usually to ensure the accuracy of a business\u2019s purported financial performance for either compliance or investment determinations.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you were to try and sell your business or pursue outside investment, your financial statement would become a critical consideration in these discussions.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A financial statement is also a beneficial document to help understand the performance of a business \u2013 its profitability or liability. In this way, a financial statement becomes an internal document of your business\u2019s viability.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The primary components of financial statements are:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a balance sheet<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">an income statement<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a <\/span><a href=\"https:\/\/www.reckon.com\/nz\/small-business-resources\/business-financing\/cash-flow-management\/\"><span style=\"font-weight: 400;\">cash flow statement<\/span><\/a><\/li>\n<\/ul>\n<h2><b>Three types of financial statements\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">There are three primary and different types of financial statements you\u2019ll need to understand and they\u2019re often distinct parts or chapters of a master financial statement.<\/span><\/p>\n<h3><strong>Balance sheet<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">The first type of financial statement is your <\/span><b>balance sheet<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The balance sheet is a kind of financial statement designed to provide an overview of your business\u2019s liabilities, assets and shareholder equity during a specific period of time.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The essential equation of a balance sheet is: <\/span><i><span style=\"font-weight: 400;\">assets = (liability + shareholder\u2019s equity).<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">A \u2018shareholder\u2019 in this instance doesn\u2019t always mean an outside investor; it can also mean the business owner (or owners) themselves along with any outside shareholders who own stock in the business.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let\u2019s investigate the three main parts of a balance sheet:<\/span><\/p>\n<h4><b><i>1) Assets<\/i><\/b><\/h4>\n<p><span style=\"font-weight: 400;\">Your assets are defined as possessions that your business owns which hold value. Assets are usually objects which can be traded for profit or be utilised to make products or services, which will then hold a marketable value. Business assets could include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">cash<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">property<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">equipment<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">vehicles<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">inventory<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">trademarks or intellectual property<\/span><\/li>\n<\/ul>\n<h4><b><i>2) Liabilities<\/i><\/b><\/h4>\n<p><span style=\"font-weight: 400;\">Liabilities are defined as the debts that your business is liable for. Liabilities include any outgoing expense, obligation or debt including your:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">rent<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">taxes<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">payroll<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">rates<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">bank loans<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">dividends<\/span><\/li>\n<\/ul>\n<h4><b><i>1) Shareholder equity<\/i><\/b><\/h4>\n<p><span style=\"font-weight: 400;\">Your \u2018shareholder equity\u2019 can also be described as your \u2018capital\u2019 or \u2018net worth\u2019. As before, the \u2018shareholder\u2019 could simply be the business owner.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Shareholder equity is defined as the value that would remain in your business after you have settled all your liabilities and traded all your assets.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The remaining value in your business after settlement and sale of assets is the shareholder equity, which can also be defined as capital.<\/span><\/p>\n<h3><b>Income statement<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The second type of financial statement we need to consider is your <\/span><b>income statement<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An income statement is designed to determine and communicate the net income of your business over a specific period of time.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An income statement can be created for yearly, half yearly or quarterly time periods. It\u2019s often accompanied by previous years\u2019 income statements for the sake of comparison.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The point of an income statement is to provide an overview of revenue, expenses and ultimately, net income.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The basic formula of an income statement is as follows: <\/span><i><span style=\"font-weight: 400;\">net income = (revenue \u2212 expenses).<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">When producing an income statement, the following steps should be taken:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Tally all sales or revenue.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Tally all business expenses and costs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Subtract total expenses from revenue to disclose net income or profit.<\/span><\/li>\n<\/ol>\n<h3><b>Cashflow statement<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The third type of financial statement will be your <\/span><b>cashflow statement<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A cashflow statement is a complimentary statement created on top of your balance sheet and income statement. Unlike type one and two however, a cashflow statement doesn\u2019t actually have a defined formula. Alternatively, a cashflow statement is created to illuminate how exactly your business both generates and spends its cash.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Understanding where a business\u2019s income is sourced and exactly how it\u2019s being used, paints a picture of your business\u2019s health, structure, and financial stability.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Most cashflow statements will comprise of information such as:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">operating activities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">investment activities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">financing activities<\/span><\/li>\n<\/ul>\n<h2><b>What is financial reporting?\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Financial reporting is basically a method of disclosing financial activity and statements to appropriate parties.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Financial reporting is the activity of communicating your financial statements and assorted relevant business information to parties such as:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">investors<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">management<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">auditors<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">prospective buyers<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">general public<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">financial advisors<\/span><\/li>\n<\/ul>\n<h3><b>Forms of financial reporting<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Financial reporting isn\u2019t necessarily restricted to the creation and distribution of a financial statement in and of itself. Any communication of the components, or distillation of a financial statement is also termed \u2018financial reporting\u2019. Other types of financial reporting include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">press releases<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">conference calls and meetings<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">website copy<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">reports to stockholders<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">reports to compliance entities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">prospect uses<\/span><\/li>\n<\/ul>\n<p>[\/et_pb_text][ba_social_share icon_bg=&#8221;#03002e&#8221; icon_padding=&#8221;10px|12px|10px|12px|true|true&#8221; layout=&#8221;classic&#8221; show_text=&#8221;off&#8221; btn_padding=&#8221;0px|0px|0px|0px|false|false&#8221; btn_bg_color=&#8221;RGBA(255,255,255,0)&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;50px||||false|false&#8221; custom_padding=&#8221;25px||||false|false&#8221; custom_css_before=&#8221;    content: %22SHARE THIS%22;||    font-size: 16px;||    font-weight: 700;||    line-height: 22px;||    letter-spacing: 0em;||    text-align: center;||    color: #ff5447;||    margin-bottom: 10px;||    display: inline-flex;||    position: absolute;||    margin-top: 10px;&#8221; border_width_top_main=&#8221;1px&#8221; border_color_top_main=&#8221;#e4e4e4&#8243; border_radii_icon=&#8221;on|5px|5px|5px|5px&#8221; global_colors_info=&#8221;{}&#8221; custom_css_before_last_edited=&#8221;off|desktop&#8221;][ba_social_share_child _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;facebook&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;linkedin&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;email&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A financial statement is an important document that helps you understand the performance of your business. Read further to find out more.<\/p>\n","protected":false},"author":6,"featured_media":280436,"menu_order":0,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"sbh_category":[104],"class_list":["post-280249","sbh","type-sbh","status-publish","format-standard","has-post-thumbnail","hentry","sbh_category-financial-information"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.5 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What Is A Financial Statement | Small Business Resources | NZ<\/title>\n<meta name=\"description\" content=\"A financial statement is an important document that helps you understand the performance of your business. 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