What are external financial statements?

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Author:
Harold Averkamp, CPA, MBA

Definition of External Financial Statements

External financial statements are those distributed outside of the company’s management. Some of the recipients of the external financial statements include the following:

• Current investors and lenders
• Potential investors and lenders
• Financial analysts
• Credit rating organizations
• Some customers and suppliers
• Government agencies

Since the external financial statements are likely to be compared to those of other corporations (and to the corporation’s previously issued financial statements), it is imperative that common rules be followed. In the U.S., the common rules are known as generally accepted accounting principles (GAAP), which are established by the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC).

Examples of External Financial Statements

The external financial statements of a U.S. corporation consist of a complete set of the following:

• income statement (statement of earnings, statement of operations)
• statement of comprehensive income
• balance sheet (statement of financial position)
• statement of cash flows (cash flow statement)
• statement of stockholders’ equity (statement of shareholders’ equity, statement of equity)
• notes to the financial statements

Related Questions

• How is the material usage variance account reported on the financial statements?
• What are the notes to the financial statements?
• What are interim financial statements?
• Is standard costing GAAP?
• What is a financial statement?
• What are consolidated financial statements?

Related In-Depth Explanations

• Accounting Principles
• Balance Sheet
• Cash Flow Statement
• Income Statement