Financial statements are the end products of the accounting process, prepared to present a periodical review of progress by the management. They reveal the financial position as on a date and the financial results obtained during a period. As noted by the American Institute of Certified Public Accountants, financial statements reflect a combination of recorded facts, accounting principles, and personal judgements.

The first element is recorded facts. Financial statements are prepared based on cost data recorded in accounting books. The original cost or historical cost is the basis for recording transactions. Figures for items like cash, trade receivables, and fixed assets are taken from the books. Since assets are shown at cost rather than market prices, these statements do not reflect the current financial condition.

Secondly, financial statements are prepared following accounting concepts, conventions, and accounting policies consistently. They must adhere to accounting standards prescribed in the Companies Act and the legal environment. They are the outcome of the summarising process of accounting.

Thirdly, the preparation involves personal judgements. These are applied in making estimates and applying accounting principles, which affect the status of investment and results achieved. Finally, financial statements are summarised reports that provide information about profitability and financial position, assisting users in their economic decisions.