A company’s financial statements are three core reports that answer three questions: the income statement tells you whether you made a profit, the balance sheet tells you what you own and what you owe, and the cash flow statement tells you where cash came from and where it went. They are usually accompanied by a statement of changes in equity and explanatory notes.
As a business owner, you do not need to prepare these statements yourself, but you do need to read them. Banks rely on them for financing, partners use them to judge performance, authorities use them in reviews, and you need them before any financial decision.
This guide explains the three types of financial statements in plain language, with figures from a Saudi trading company. It shows how the statements connect, when companies must file them with the Ministry of Commerce, and how to generate them from your accounting system.
What are Financial Statements and Why Does Your Business Need Them?
Financial statements are the year-end (or period-end) reports that summarise a business’s results and financial position, prepared from the entries in its books under approved accounting standards. They are the official picture of your numbers for anyone who deals with you.
Your business needs them for four practical reasons:
- Decision-making: knowing which products and branches make money, how expenses are trending, and whether you can afford to expand.
- Financing: banks and finance providers ask for financial statements before granting any facility.
- Compliance: companies must file their statements with the Ministry of Commerce, and the statements are relied on in dealings with the Zakat, Tax and Customs Authority (ZATCA).
- Transparency with partners: profit distributions and the valuation of partners’ shares are based on these figures.
All three statements rest on the accrual basis and generally accepted accounting principles. If you want a refresher on those foundations, read our guide to accounting principles for non-accountants.
The Income Statement: Did You Really Make a Profit?
The income statement shows revenue and expenses over a period, and the difference is net profit or loss. It answers the performance question: did the business make money this year or quarter?
Here is an example for a small trading company in Riyadh for a full financial year. Amounts are in SAR and exclude VAT, because VAT collected is not the company’s revenue but a liability owed to ZATCA.
| Line Item | Amount (SAR) |
|---|---|
| Sales | 1,200,000 |
| Cost of goods sold | (720,000) |
| Gross profit | 480,000 |
| Salaries and wages | (180,000) |
| Rent | (60,000) |
| Depreciation | (20,000) |
| Other operating expenses | (40,000) |
| Net profit before zakat | 180,000 |
Read the income statement from top to bottom. Gross profit measures how well you price and buy, while net profit measures whether the business covers its fixed costs. A 40% gross margin, as in this example, may be excellent in one sector and weak in another, so always compare it with your previous years and your industry.
The Balance Sheet: What You Own and What You Owe
The balance sheet, called the statement of financial position under IFRS, shows a business’s assets, liabilities and equity on a specific date, usually the financial year-end. It is the accounting equation in report form: assets = liabilities + equity.
Continuing the same example, this is the company’s balance sheet at year-end:
| Line Item | Amount (SAR) |
|---|---|
| Cash and cash equivalents | 90,000 |
| Trade receivables | 150,000 |
| Inventory | 260,000 |
| Equipment, net of depreciation | 100,000 |
| Total assets | 600,000 |
| Trade payables | 140,000 |
| VAT payable | 25,000 |
| End-of-service benefits provision | 35,000 |
| Total liabilities | 200,000 |
| Share capital | 250,000 |
| Retained earnings | 150,000 |
| Total equity | 400,000 |
| Total liabilities and equity | 600,000 |
What should you read here? First, liquidity: current assets (cash, receivables and inventory) comfortably cover short-term obligations. Second, asset quality: SAR 150,000 owed by customers is large compared with cash, which signals that collections need attention.
The Cash Flow Statement: Where Did the Cash Go?
The cash flow statement tracks the actual movement of cash during the period and splits it into operating, investing and financing activities. It is the only one of the three that is not prepared on the accrual basis, because it measures cash actually received and paid.
| Line Item | Amount (SAR) |
|---|---|
| Net profit | 180,000 |
| Add: depreciation | 20,000 |
| Increase in receivables | (70,000) |
| Increase in inventory | (60,000) |
| Increase in payables | 30,000 |
| Increase in other liabilities | 10,000 |
| Net cash from operating activities | 110,000 |
| Purchase of equipment (investing) | (40,000) |
| Distributions to partners (financing) | (30,000) |
| Net change in cash | 40,000 |
| Cash at start of year | 50,000 |
| Cash at end of year | 90,000 |
This is the key lesson for an owner: the company earned SAR 180,000 of profit, yet cash rose by only SAR 40,000. The difference went into customer balances, extra stock, new equipment and partner distributions. Profit is not cash, and many profitable businesses run into trouble because of liquidity, not losses.
Also read: debit and credit explained with double-entry examples, because every figure in these statements started as a double entry in the journal.
How the Three Statements Connect
The three statements are not separate reports but one picture from three angles. Net profit from the income statement flows into retained earnings on the balance sheet, and closing cash on the cash flow statement equals cash on the balance sheet.
In our example, the links are clear:
- Net profit of SAR 180,000 from the income statement is the starting point of the cash flow statement.
- Retained earnings of SAR 150,000 on the balance sheet equal net profit less SAR 30,000 of partner distributions (assuming no retained earnings from earlier years).
- Closing cash of SAR 90,000 on the cash flow statement is the same figure shown on the balance sheet.
If these figures do not tie, there is an error in the entries. That is why accountants always review the trial balance before preparing the statements, as we explain in trial balance analysis and error detection in ERP.
Filing Financial Statements with the Ministry of Commerce
The Companies Law requires companies to file their financial statements with the Ministry of Commerce within six months of the end of the financial year, electronically through the Qawaem platform. A company with a 31 December year-end must therefore file before the end of June of the following year.
The Ministry has stated in its reminders that this obligation rests on Article 17 of the Companies Law, and that responsibility lies with the company’s president, manager or board chair depending on its legal form. Failing to prepare the statements under approved accounting standards, or failing to file them, exposes the company to a financial penalty under Article 262 of the Law.
Practical points before the filing deadline:
- Standards: statements are prepared under IFRS as endorsed by the Saudi Organization for Chartered and Professional Accountants (SOCPA), or the IFRS for SMEs Standard depending on the company’s size.
- Audit: confirm with your chartered accountant which audit requirements apply to your company’s legal form and size.
- Sole establishments: the filing obligation under the Companies Law is aimed at companies, so if your business is a sole establishment, check its obligations with the Ministry of Commerce and ZATCA.
For the latest instructions, see the Ministry of Commerce financial statements page (in Arabic).
Want your statements ready well before the deadline? Talk to the Daysum team about financial reporting in your system.
Generating Financial Statements in Daysum with One Click
In Daysum’s cloud ERP built on Odoo, financial statements are built directly from posted entries, so there is no need to copy figures into external spreadsheets. The accounting reports include the profit and loss statement, the balance sheet and the cash flow statement, alongside the general ledger, aged receivables and payables, and the tax report.
What this means in practice:
- Real-time figures: every confirmed invoice or payment shows up in the statements immediately, so you can review a monthly income statement, not only an annual one.
- Drill-down to source: you can move from any figure to the entries and invoices behind it.
- Comparison: show two or more periods side by side to see how margins and expenses change.
- Export: export reports to review them with your chartered accountant before filing.
These statements are only as accurate as the general ledger behind them, which is why we recommend reading how Odoo and Daysum help manage the general ledger.
Conclusion: Three Statements for Sound Financial Decisions
The income statement measures profit, the balance sheet measures what you own and owe, and the cash flow statement measures the actual movement of cash. Read all three together, because profit on its own can hide a cash shortage.
For companies, preparing these statements under approved standards and filing them through Qawaem within six months of year-end is a legal obligation, not an optional task.
If you want up-to-date financial statements from your system without manual spreadsheets, contact the Daysum team to review your chart of accounts and the reports you need.
FAQs About Financial Statements
The basic financial statements are the income statement, the balance sheet (statement of financial position) and the cash flow statement, together with the statement of changes in equity and the notes. Each answers a different question: profit, financial position and cash movement. They are read together because each one links to the others.
Yes. The Companies Law requires companies to file their financial statements with the Ministry of Commerce through the Qawaem platform within six months of the financial year-end. Responsibility lies with the company's president, manager or board chair depending on its legal form, and failing to file exposes the company to a financial penalty.
There is no difference in substance; they are two names for the same statement showing assets, liabilities and equity at a specific date. "Statement of financial position" is the term used in IFRS, while "balance sheet" remains common in everyday use and in many accounting systems.
The income statement is prepared on the accrual basis, so it records credit sales and accrued expenses before cash is received or paid. The bank balance is also affected by stock and equipment purchases, loan repayments and partner distributions, which are not expenses in the income statement. The cash flow statement explains this difference line by line.
Filing is annual, but management review should be at least monthly or quarterly. Regular review catches falling margins or growing customer balances early. This is much easier when the statements are generated automatically from the accounting system instead of waiting for year-end.
