---
title: "What is financial statements?"
description: "Financial Statements explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/financial-statements/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is financial statements?

Glossary

Financial statements are the standard reports, the balance sheet, income statement and cash flow statement, that summarize a business's financial position and performance over a period, all built from the same underlying general ledger.

Updated September 2026

## How financial statements works

Financial statements draw on the same underlying transactions, coded correctly and posted consistently through the period, then reconciled at close before anything is finalized. The balance sheet shows what is owned, owed and retained at a point in time, the income statement shows revenue and expenses over the period, and the cash flow statement shows how cash actually moved during that same time.

The three statements connect to each other: net income from the income statement flows into retained earnings on the balance sheet, and the cash flow statement reconciles net income to the actual change in cash. If the statements do not tie together properly, something upstream, usually a reconciliation or a missed adjusting entry, needs a closer review before the numbers can be trusted.

## Example

After closing its books for the quarter, a business produces its financial statements: a balance sheet showing $340,000 in total assets, an income statement showing $28,000 net income for the quarter, and a cash flow statement showing cash increased $19,000 after accounting for a $9,000 equipment purchase. The owner uses these three statements together to confirm the business is both profitable and genuinely generating cash.

## Financial Statements in QuickBooks Online vs Xero

QuickBooks Online generates standard Profit and Loss, Balance Sheet and Statement of Cash Flows reports directly from posted transactions with no manual assembly. Xero produces the equivalent reports plus customisable report templates for combining them into one cohesive pack.

## Common mistakes

- Financial statements are prepared before all accounts are reconciled, so the balance sheet, income statement and cash flow statement do not actually tie together.
- Statements are shared with a lender or investor without a final review, leaving in an error that undermines confidence in the whole set of numbers.
- The three statements are treated as independent reports instead of connected ones, missing a clue when net income does not flow through to retained earnings correctly.

## Why it matters

Financial statements are what a lender, investor or the owner relies on to judge whether a business is actually profitable and solvent, not just busy. Statements that do not tie together, or that go out before a proper review, undermine the credibility of the numbers at exactly the moment it matters most. For business owners seeking financing or making major decisions, accurate, reconciled financial statements are the foundation everything else is built on.

## Related terms

- [Balance Sheet](https://ledgerbpo.com/glossary/balance-sheet/)
- [Income Statement](https://ledgerbpo.com/glossary/income-statement/)
- [Cash Flow Statement](https://ledgerbpo.com/glossary/cash-flow-statement/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles financial statements

We reconcile your books each period and prepare a full set of financial statements, balance sheet, income statement and cash flow statement, ready for your own review or to hand directly to a lender or investor.

[Reports your lender, investor and you will actually read](https://ledgerbpo.com/services/financial-reporting/)

Next step

## Books closed. Invoices paid. Every month.

Tell us what is going on with your books or billing. You will hear from a named person within 1 business day, with a custom quote and a plan for the first close.

- Reply from a named person within 1 business day
- No setup fee, month-to-month
- Your software, your data, no lock-in

Start with a custom quote

[Get a custom quote](https://ledgerbpo.com/get-a-quote/) [Book a 20-minute call](https://ledgerbpo.com/book-a-call/) Or call [+1-657-777-0006](tel:+16577770006) during US, UK or Australian business hours.

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Source: https://ledgerbpo.com/glossary/financial-statements/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt