Every public company tells its financial story through a few key documents. These aren't just collections of numbers; they are formal reports that follow specific rules of accounting and language. The two most important are the Balance Sheet and the Income Statement. Understanding them allows you to see a company's financial health at a glance.

Think of the Balance Sheet as a snapshot. It shows what a company owns and what it owes at a single point in time. The Income Statement, on the other hand, is like a video. It shows how profitable the company was over a period, like a quarter or a year.

The Balance Sheet is built on a simple but powerful equation. It must always balance.

Let's break down the two main parts you need to know for now. Assets are economic resources owned by the company that have future economic value. Liabilities are a company's financial obligations or debts.

The Income Statement measures a company's performance. It starts with total sales, called Revenue, and subtracts various costs to arrive at the final profit.

One key distinction is between gross and net profit. Gross profit is the profit a company makes after paying for the direct costs associated with making and selling its products. Net profit, often called the 'bottom line', is what's left after all expenses have been paid, including taxes and interest.

One common expense you'll see is Depreciation This accounts for the loss in value of an asset over time. For instance, a delivery truck is worth less after a year of use, and this loss is recorded as an expense.

Financial reports are formal and objective. To achieve this tone, they almost always use the passive voice. This structure emphasizes the action rather than the person or department who performed it. The focus is on what happened, not who did it.

When reporting on past events, such as the results from the previous year, the past passive is used. This is formed with was/were + past participle.

Now, let's review the key terms we've covered.

Ready to test your knowledge? This quiz will cover the main ideas from this section.

By mastering this vocabulary and the passive voice, you can read and describe financial reports with the formal, objective tone used by professionals.