Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Most US companies need three core statements: a profit and loss statement (income statement), a balance sheet and a cash flow statement, plus a statement of changes in equity when investors, lenders or auditors are involved. No federal law requires a private company to publish them, but corporate tax returns include balance-sheet and book-to-tax schedules, and banks, investors and foreign parents routinely ask for them.
Key takeaways
- The profit and loss statement shows performance over a period, the balance sheet shows position at a date, and the cash flow statement explains why cash changed.
- Form 1120 asks for a balance sheet (Schedule L) and book-to-tax reconciliations (Schedules M-1 and M-2); corporations whose total receipts and total assets are both under $250,000 can generally skip them.
- Corporations with total assets of $10 million or more generally file the more detailed Schedule M-3 instead of Schedule M-1.
- Private US companies are not required to follow US GAAP for internal reporting, but statements prepared for investors, lenders or an audit are almost always GAAP-based.
- A foreign-owned US subsidiary usually also prepares a reporting pack in the parent's framework, such as IFRS, for consolidation.
The core statements and what each one answers
| Statement | Question it answers | Key lines for a startup |
|---|---|---|
| Profit and loss (income statement) | Did we make or lose money over the period? | Revenue, cost of revenue, gross profit, operating expenses, net income |
| Balance sheet | What do we own and owe at this date? | Cash, receivables, prepaid expenses, payables, deferred revenue, loans, equity |
| Cash flow statement | Why did cash change? | Cash from operations, investing (equipment, software) and financing (owner funding, SAFEs, loans) |
| Statement of changes in equity | How did ownership capital move? | Contributions, distributions, share issuances, net income |
The statements are linked. Net income from the P&L flows into equity on the balance sheet; the cash flow statement starts from net income and ends at the balance-sheet cash figure. If those links do not hold, at least one statement is wrong.
Equity statements and notes
For an LLC, the equity statement is a member capital rollforward: opening balance, contributions, distributions, profit or loss, closing balance. For a C-Corp it shows common and preferred stock, additional paid-in capital, retained earnings or accumulated deficit, and any SAFEs or options presented in equity.
Full financial statements also include notes: the basis of accounting, revenue recognition policy, related-party transactions, commitments such as leases, and significant subsequent events. Internal monthly statements rarely include notes, but annual statements sent to a bank, investor or auditor usually should — particularly the related-party note for a foreign-owned company, which explains balances with the parent or founder.
Where the IRS uses your financial statements
The US corporate return starts from the books. Form 1120 includes:
- Schedule L — a balance sheet at the beginning and end of the year.
- Schedule M-1 — a reconciliation of book income to taxable income, covering items such as non-deductible meals, depreciation differences and federal income tax expense.
- Schedule M-2 — an analysis of unappropriated retained earnings.
These schedules are generally not required when total receipts and total assets at year-end are both below $250,000, and larger corporations with USD 10 million or more in assets generally file Schedule M-3 instead of M-1. A partnership return on Form 1065 has its own balance sheet and reconciliation schedules.
When the Schedule L on the return does not match the books, the next year's opening balances are wrong — a frequent source of cleanup work.
Who else asks for financial statements, and in what form
- Banks and fintechs request statements during onboarding reviews, periodic KYC refreshes and credit applications.
- Investors usually receive monthly or quarterly statements under information rights in their investment documents.
- Lenders test covenants such as minimum cash or debt service coverage from quarterly statements.
- Foreign parents need monthly or quarterly packs mapped to group accounts for consolidation.
- Auditors, where an audit is required, test annual statements prepared by management.
Statements can be management-prepared, compiled, reviewed or audited. Compilations, reviews and audits are services performed by licensed CPA firms; management-prepared statements are the company's own representation of its results.
Basis of preparation: cash, tax or GAAP
Small companies often prepare statements on the cash or income-tax basis, which is acceptable for internal use and many bank requests. Investors and lenders generally expect accrual-basis statements following US GAAP, which means deferred revenue, accrued expenses and revenue recognized when earned.
Whatever the basis, label it clearly on the statements. A cash-basis P&L sent to an investor who assumes GAAP creates confusion when the numbers are later restated.
A US subsidiary of a foreign group has a third layer. The parent may report under IFRS, Ind AS or UK standards, with its own fiscal year and chart of accounts. Rather than keeping two sets of books, the usual approach is one set of US books plus a documented mapping and a short list of adjustments — for example, differences in lease accounting or capitalization thresholds — applied when the group reporting pack is prepared. Keeping that adjustment list stable from period to period is what lets the parent's auditors rely on the subsidiary's numbers without re-testing them from scratch.
Common mistakes to avoid
- Sending a bank a profit and loss statement without a balance sheet, or a balance sheet whose equity does not tie to the P&L.
- A balance sheet showing owner wires as revenue rather than equity.
- Presenting cash-basis statements to investors without labeling the basis.
- Schedule L on the tax return not matching the year-end balance sheet in the books.
- Building the cash flow statement by hand so it does not reconcile to the bank balances.
- Omitting related-party balances with the foreign parent from the notes or disclosures.
NYBACS 360° support
How NYBACS helps
- Prepares monthly and annual P&L, balance sheet, cash flow and equity statements tied to reconciled accounts.
- Labels and maintains the basis of preparation appropriate to each audience — tax, management or GAAP-oriented.
- Maps the US statements into your parent company's group reporting format for consolidation.
- Prepares statements and supporting schedules for your tax preparer and, where needed, for the independent auditor — without issuing any audit opinion.
- Ensures the year-end balance sheet agrees with Schedule L and next year's opening balances.
Frequently Asked Questions
Do I need audited financial statements?
Most private US companies are not legally required to have an audit. Audits are typically triggered by investors, lenders, a foreign parent's group auditor or specific regulators, so check your agreements and your parent's requirements.
Are bank statements the same as financial statements?
No. Bank statements record one account's transactions. Financial statements summarize all of the company's activity, assets and obligations, including items that never touch the bank such as accrued expenses or deferred revenue.
Does a single-member LLC need a balance sheet?
A foreign-owned single-member LLC files a pro forma Form 1120 that does not include a full balance sheet, but banks, investors and the owner will still want one. A balance sheet is also the best check that the books are complete.
Who signs or approves the financial statements?
Management is responsible for them. A CPA firm may compile, review or audit them; an accounting service provider can prepare them, but management still owns the numbers.
How often should statements be prepared?
Monthly for internal use once the company has meaningful activity, with quarterly and annual versions for investors, lenders and tax. Comparative columns for the prior period make them far more useful.
