What is a financial statement? A detailed guide from A to Z

The financial statement is one of the most important tools in the financial management of any business. This document provides an overview of the assets, capital, revenue, expenses and profits of the business over a certain period of time. Understanding and effectively using this report will help businesses make the right business decisions and meet legal requirements for financial transparency.

1. What is a financial statement?

Financial statement is a set of accounting documents prepared according to regulations, to provide information on the financial situation, business performance and cash flow of a unit in a certain accounting period. This document is built on accounting principles and complies with international or domestic financial reporting standards.

2. Benefits of financial statements

Preparing financial reports accurately, completely and promptly brings many practical benefits to businesses:

• Improve management efficiency: Providing accurate information helps managers make the right decisions about investment, production expansion, and cost reduction.
• Enhance financial transparency: Build trust with stakeholders such as investors, partners, suppliers and customers.
• Convenience in accessing capital: Transparent and accurate financial reports make it easier for businesses to borrow from banks or raise capital from investors.
• Compliance with legal regulations: Avoid legal risks and fines due to violations of accounting and tax regulations.
• Fraud Detection: Accurate financial reporting helps detect signs of fraud and misappropriation of assets.
• Tax Optimization: Understanding your financial situation helps businesses plan their taxes effectively and legally.
• Future Forecasting: Provides a database for building financial forecasting models and long-term planning.

3. Instructions on how to prepare a financial statement

I. ASSETS

Cash and cash equivalents:

• Record the total value of cash, demand bank deposits and other cash equivalents.
• Includes assets that are easily convertible to cash within 3 months and are subject to no significant risk.

Financial investment:

• Represents the value of financial investments after deducting risk provisions.
• Excludes amounts listed under “Cash and cash equivalents” and “Other receivables”.

Accounts receivable:

• Including receivables from customers, advances to sellers, working capital of dependent units.
• Provision for doubtful receivables.

Inventory:

• Reflects the total value of inventory serving the production and business process at the reporting time.

Fixed assets:

• Record the recoverable value of fixed assets at the reporting date, including tangible and intangible assets.

Investment real estate:

• Record the remaining value of invested real estate for rental or appreciation.

Construction in progress:

• Reflects investment costs and major repair costs related to fixed assets in the process of completion.

Other assets:

• Record the value of other assets not listed in the above items.

Total assets:

• Calculate the total value of all listed asset items.

II. CAPITAL SOURCES

Liabilities:

• Record the total value of debts that the business must pay, including short-term and long-term debts.

Equity:

• Record the value of shareholders' capital contributions and retained earnings.

Total capital:

• Calculated as the sum of the value of liabilities and equity.

III. PRINCIPLES OF PREPARING FINANCIAL STATEMENTS

Recording basis:

• Assets and equity items should be recorded at cost or net realizable value (if lower).

Classification of assets and liabilities:

• Divided into short term (less than 12 months) and long term (more than 12 months) based on maturity or payment period.

Principle of caution:

• Ensure that bad debts, impaired inventories and underperforming investments are adequately provisioned.

Consistency:

• Accounting methods and reporting presentation must be consistent from accounting period to accounting period to facilitate comparison.

Full and honest presentation:

• Ensure all indicators are presented fully, honestly and accurately reflect the financial situation of the enterprise at the time of reporting.

4. DOWNLOAD: Latest financial status report template 2025

The financial report form for small and medium enterprises is issued with Circular 133/2016/TT-BTC of the Ministry of Finance guiding the accounting regime for small and medium enterprises.

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Financial statements are an important tool for businesses to accurately assess their financial status, performance and future development potential. Preparing transparent and detailed financial statements not only helps managers make the right decisions but also builds trust with investors and stakeholders. Therefore, businesses need to focus on updating and analyzing financial statements periodically to ensure stability and sustainable development.