February 1, 2011
Financial Statements Paper
This paper the subject to describe will be the purpose of accounting. Four basic financial statements of accounting will be listed and explained. An explanation of how these basic financial statements are interrelated and how they are useful to managers, investors, creditors, and employees will be presented.
The primary purpose of accounting is to identify and record all activities that impact the organization financially. All activities, including purchases, sales, the acquisition of capital and interest earned from investments can be classified in monetary terms and posted to a specified account as an accounting record. These transactions typically are recorded in ledgers and journals and are part of the process known as the accounting cycle (Karimi/2010).
Businesses report information in the form of financial statements issued on a periodic basis. Balance sheet, income statement, statement of owner equity, and statement of cash flows are the four basic financial statements of accounting. The balance sheet reports the resources of the entity it is useful when evaluating the ability of the company to meet its long-term obligations. The income statement presents the results of the entity’s operations during a time period. The equity statement explains the changes in retained earnings. Retained earnings appear on the balance sheet and most commonly are influenced by income and dividends. The statement of cash flows is useful in evaluating a company’s ability to pay its bills (quickmba/2011).
To perform financial analysis, owners and managers require financial statements. These statements provide detailed information that helps managers and owners in making important business decisions. Statements provide management with understanding of figures that they may relay to stockholders. When discussing promotions, compensation and rankings, employees present financial... [continues]
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