Financial Statements 2
The purpose of this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees. Accounting
Accounting is a business discipline that allows companies to record, analyze, and retrieve critical financial information that can be used to determine a company's financial status. Its purpose is to help people understand what is going on financially within an organization provide reports and insights needed to make sound financial decisions. Effectively communicating this information is key to the success of every business. This information is reported in the form of four financial statements. Financial Statements
The four basic financial statements of accounting are the Income Statement, Balance Sheet, Retained Earnings Statement (a.k.a. Statement of Stockholders Equity), and Statement of Cash Flows. The Income statement shows the profitability of the company over a specific period of time. Classifies financial data under two categories revenues and expenses. It represents revenues earned and expenses incurred. (Formula: Revenue-Expenses=Net Income or Net Loss). The Retained Earnings Statement a.k.a. Statement of Stockholder’s Equity shows increases and decreases to stockholders equity accounts for a specific period of time. (Formula: Stockholders Equity= Common Stock + Retained Earnings).The Balance Sheet reports financial data under Financial Statements 3
three categories assets, liabilities, and stockholder’s equity. Shows the financial position of the company on a particular date. It shows not only what is owed by the company but also what is owned. (Formula: Assets= Liabilities+ Stockholders Equity (Common Stock + Retained Earnings= Stockholders Equity) or...