Financial statements are essential tools used by businesses to summarize their financial performance and position. Among the options given, option a states that ‘financial statements are plans and forecasts for future time periods,’ while option b claims that ‘financial statements are the verbal statements made to business news organizations by chief financial officers.’
To clarify, the correct understanding of financial statements is that they are formal records of the financial activities of a business, which include the balance sheet, income statement, and cash flow statement. They provide a historical view of the company’s financial health and performance rather than forecasts or casual verbal statements. Therefore, neither option accurately defines financial statements, as they reflect past financial data rather than future plans or verbal communications. The closest to a correct statement would be one that describes financial statements as documents that present the company’s financial performance over a specific time period.