Financial Statements

Topics: Generally Accepted Accounting Principles, Balance sheet, Income statement Pages: 3 (787 words) Published: March 30, 2013
For a business owner, their main goal is to make a profit, and become successful so they can have a long future. In order to do that, he or she will have assets that will outweigh their liabilities and expenses, to gain a profit in the company. In a company there are four financial statements (Balance sheet, Income statement, Retained earnings statement, and Statement of cash flow) that he or she must have so investors can see in different time periods how their company is doing. “Preparing an income statement is one of the basic responsibilities of the accounting function.” (Alvis, Hillstrom, 2006, para. 3) This financial statement lets his or her investors know how well he or she did on revenues after they had to pay out their expenses for the time period. This lets the investors know how his or her business is doing in the product or service in which their selling. Cash is the most important asset a company can have, because he or she can pay expenses without having to liquidate any other assets (ex. computers, office furniture, etc.). It also lets them know how much expenses him or her generally have going out of the business. In preparing a Retained Earnings Statement, him or her first need to take his or her retained earnings, which is the money that was earned off of the common stock, and him or her want to use to grow the business instead of paying the money out in dividends. He or she will add retained earnings to their net income, then subtract out any dividends that will be paid to stockholders. That will show him or her their total Retained Earnings. “Some investors seek companies that pay high dividends. Other investors seek companies that instead of paying dividends reinvest earnings to increase the company’s growth. Lenders monitor their corporate customers’ dividend payments because any money paid in dividends reduces a company’s ability to repay its debts.” (Kimmel, Weygandt, & Kieso, 2003, p. 13).

The Balance Sheet describes...
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