Chapter 17, Problem 1DQ

To determine

Introduction:

Financial statements are the documents that present the information about income for a business at a particular date or time or for a particular period. It is a formal record of financial activities undertaken and net position of a business entity or a person. Financial Statements is a part of financial reporting.

Financial reporting involves disclosure of financial results of an organization to the users of such information. Users may be government, management, shareholders, investors, other stakeholders.

The difference between financial statements and financial reporting

Answer to Problem 1DQ

Solution:

The following are the differences between financial statements

Financial Statements	Financial Reporting
Financial statements are short documents including Balance Sheet, Statement of Profit or loss or Income statement, equity statement, Cash flow statement	Financial Reporting encompasses larger documentation and include Financial statements, Notes to Accounts and accompanying footnotes, Annual reports, Prospectus issued to Potential investors.
Financial statements only concern with financial aspect of the aspect showing incomes or losses or asset position	Financial Reporting has wider usage as it consists of annual reports which contains wide range of information for more varied usage by different stakeholders.

Explanation of Solution

Different types of financial statements are:

1. Balance Sheet − which shows the financial position of the business as to what it owns and how it has financed its assets
2. Statement of Profit or loss or Income statement− which shows the net profit or loss of the business organization for a particular period.
3. A Statement of changes in equity or equity statement during the period.
4. Cash flow statement that shows the sources and application of funds of the company.

Financial reporting involves the following:

1. Financial statements (Including Balance Sheet, Income Statement and Cash flow statements)
2. Notes to Accounts and accompanying footnotes which involve detailed explanations and relevant accounting policies adopted and assumptions made.
3. Annual Reports-which also contains Management reports, Auditors Report, corporate social responsibility reports which gives an important insight about the performance of the company.
4. Prospectus issued to Potential investors, etc

Conclusion

Hence, Financial statements showing the financial results and financial position of the company is a part of Financial Reporting which also includes notes to accounts, management's report which gives wider range of detailed information for more informed decision making.