Week 1 Checkpoint - Financial Statements

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There are four basic financial statements that companies use. They begin with income statement, statement of owner’s equity, balance sheet, and the statement of cash flows. Company’s use income statements to report how much money they have made and how much they have spent over a specified period of time. The statement of owner’s equity is used to report any changes in equity from a company’s net income or net loss, as well as report changes in the owner’s investments and withdrawals over a specified period of time. The balance sheet is used to report a company’s financial position at any point in time. This statement includes information such as what types of assets and their amounts, liabilities, and equity. The statement of cash flows is the last document out of the four basic financial statements. This statement is used to report how much money a company is bringing in (receipts), and how much they are spending (payments), during a specific period of time. Any changes found in assets and liabilities on a balance sheet reflect the revenues and expenses found in the income statement, which in turn results in gains or losses for a company. The statement of cash flows reports more information concerning the cash assets that are listed on a balance sheet and a linked, but not necessarily the same, as the net income found on the company’s income statement. Financial statements are nothing but numbers on a document when they’re on their own, but together, they provide valuable and powerful information for a company to make very big decisions about how to run their company, and how to make decisions for their company in the future. The information is also valuable for investors to make wise and educated decisions for investing in companies.
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