Question

Differentiate between “financial statements” and “financial reporting.”

Short answer

A financial statement is a formal record that explains the financial activities and position of an entity. In contrast, financial reporting is an accounting practice that involves studying the entity’s financial statements and highlights its financial information and performance.

Step-by-step solution

Purpose of Financial Statement

Financial statements are the accounting books that present the financial condition of an entity and thereby reflect the expenses and income of the entity. Financial statements are important for providing information to potential investors to obtain finance from them.

Purpose of Financial Reporting

Financial reporting involves examining various financial statements to make important decisions by the stakeholders after understanding and interpreting the financial statements. It involves recording the operations of financial activities in the books of accounts.

Therefore, Financial statements can be seen as a result of the financial reporting process.