Definition: Annual financial statements are financial reports based on a 12-month consecutive time period. The most common set of financials are based on the calendar year, but they can also be based on a company’s fiscal year.
Public companies are required to issue statements at interim periods throughout the year as well as reports covering the complete year’s financial activity. The most common set of reports issued are the general-purpose financial statements that include a balance sheet, income statement, statement of retained earnings, and statement of cash flows. Investors and creditors base their business decisions on the analysis of these reports along with management’s notes.
Example
The balance sheet lists a recap of the company’s assets, liabilities, and equity that existed at the end of the year. This report is a snapshot of the financial position of the company on a single date in time.
The income statement reports the income and expenses of the company during a period of time. Since the time frame covered by the income statement is larger than the time frame covered by the balance sheet, the income statement is considered to be more reliable or at least a more complete view of the company activities.
The statement of stockholders equity is a report that simply recaps the transactions that affected the equity accounts during the period. Transactions like dividends, owner’s investments, and mergers generally tend to be listed on this report along with an explanation in the notes section of the full report.
The cash flows statement reports how the company generated and used its cash during an accounting period. It splits cash flows into three main sections: operations, investing, and financing.
All of these reports combined with the management analysis and discussion and financial notes sections are typically issued annually in the third month following the end of the previous accounting period. Thus, a calendar year-end business would issue their statements in March.
