What are financial statements?

Financial statements are formal records that provide a comprehensive overview of the financial activities and position of an entity, such as a business or organization. These statements typically include key documents such as the balance sheet, income statement, and cash flow statement, which collectively offer insights into the entity's financial health, profitability, and liquidity at a specific point in time.

The importance of this definition lies in the fact that financial statements serve as a standardized means for stakeholders—such as investors, creditors, and management—to assess the financial performance and stability of the entity. They facilitate informed decision-making regarding investments, lending, and strategic planning.

In contrast, other options focus on different aspects of financial information. Forecasts of future financial performance are projections rather than actual records. Detailed tax records pertain specifically to tax-related documents, which are more about compliance than a holistic view of financial status. Internal reports for operational management do not fit into the formal category and are often unstandardized, serving a different purpose primarily related to management oversight rather than external reporting or evaluation.