What is a financial statement, and which one do you actually need?
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Key takeaways
“Financial statement” is an umbrella term covering the balance sheet, income statement, and cash flow statement.
Each statement answers a different question about a business’s finances.
Immigrants navigating financial systems in a new country encounter financial statements when opening accounts, applying for loans, or proving income.
For businesses with international payments, all three statements need to reflect currency conversion accurately.
Statements can be compiled, reviewed, or audited, three meaningfully different levels of assurance a lender or investor might specifically require.
Most people searching for “financial statement” want to know one thing: which document is which, and which one they actually need. Here’s a comparison of the three core types.
What is a financial statement?
A financial statement is a formal document that summarizes a business’s or individual’s financial activity and position. The term covers three core types: the balance sheet(opens in new window), which shows what’s owned and owed at a point in time; the income statement(opens in new window), which shows revenue and expenses over a period; and the cash flow statement, which tracks the actual movement of cash.
Financial statement types compared: key differences
Balance sheet | Income statement | Cash flow statement | |
|---|---|---|---|
Purpose | Shows financial position at a moment | Shows profitability over a period | Shows actual cash movement over a period |
What it shows | Assets, liabilities, equity | Revenue, expenses, net profit or loss | Cash inflows and outflows by category |
Time period covered | A single date | A period, such as a month or year | A period, such as a month or year |
Who typically uses it | Lenders assessing overall financial health | Owners and investors assessing profitability | Owners managing day-to-day liquidity |
Record-keeping tip
Keep dated copies of every financial statement prepared, not just the most recent version. Having a consistent history on file makes it far easier to respond quickly when a lender or investor asks for statements covering a specific past period.
Why financial statements matter for your finances
For immigrants navigating financial systems in a new country, understanding financial statements is a practical skill that comes up in several everyday contexts: opening certain accounts, applying for a loan, proving income for a rental application, or seeking financing for a small business. Knowing which statement answers which question helps in responding confidently rather than guessing what a lender or landlord actually needs.
A quick way to remember the distinction: the balance sheet vs income statement(opens in new window) comparison comes up most often, since these two are frequently confused, a balance sheet is a snapshot, an income statement is a summary of activity over time.
Financial statements and international business payments
For immigrant small business owners with international payments, all three statement types need to reflect currency conversion accurately. A balance sheet needs foreign-currency assets and liabilities converted at an appropriate rate. An income statement needs foreign revenue and expenses converted consistently. A cash flow statement needs to capture the actual, sometimes delayed, timing of international payments clearing.
Using small business invoicing and accounting tools(opens in new window) that handle multi-currency transactions correctly makes preparing accurate financial statements far easier than trying to reconcile currency conversions manually after the fact.
Who typically reviews a small business’s financial statements
Beyond the business owner, a lender, a potential investor, and the IRS may all review financial statements at different points, each with a different specific focus: a lender cares about repayment capacity, an investor cares about growth potential, and the IRS cares about accurate reporting.
How often financial statements should be prepared
Many small businesses prepare financial statements monthly or quarterly for internal management purposes, then a more formal annual set for tax filing, though the right frequency depends on how actively the statements are being used to make ongoing business decisions versus simply meeting a filing requirement.
Why a compiled, reviewed, or audited statement means different things
Financial statements come with three meaningfully different levels of assurance: a compiled statement is simply organized by an accountant without any verification of accuracy; a reviewed statement involves an independent accountant applying limited procedures to check for obvious inconsistencies; and an audited statement, the highest level, involves comprehensive testing and an independent opinion on whether the statements fairly represent the business’s finances. A lender or investor may specifically require one level over another, so confirming which is actually needed before commissioning one saves both time and cost.
Why a bank may request statements prepared by a specific standard
Some lenders require financial statements prepared according to Generally Accepted Accounting Principles, a standardized framework, rather than an informal internal format, particularly for a larger loan request, worth confirming with a lender before assuming existing statements will automatically satisfy their specific requirement.
Common questions about financial statements
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Which financial statement do I need for a loan application?
Lenders typically want to see all three: a balance sheet to assess overall financial position, an income statement to assess profitability, and often a cash flow statement to assess whether the business can service the debt. Some lenders may accept a subset depending on the loan size and type.
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What’s the difference between a financial statement and a tax return?
A financial statement is an accounting document describing a business’s financial performance and position, prepared according to accounting principles. A tax return is a legal filing calculating tax owed, based on tax rules that sometimes differ from standard accounting treatment. The two are related but not identical, and a lender or investor typically wants to see financial statements, not just a tax return.
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Do I need a professionally prepared financial statement, or can I create my own?
For personal purposes or informal loan applications, a self-prepared statement using accounting software is often sufficient. For larger loans, formal investment, or certain legal purposes, a lender or investor may require a statement prepared or reviewed by an accountant, so confirming what level of formality is expected before preparing one independently is worth doing.
In Summary
“Financial statement” isn’t one document; it’s a family of three, each answering a different question about a business’s finances. Knowing which one a lender, landlord, or investor is actually asking for saves time and helps in presenting a business’s finances accurately.
This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.