The Four Basic Financial Statements

Only available on StudyMode
  • Download(s) : 276
  • Published : October 18, 2008
Open Document
Text Preview
The Four Basic Financial Statements
In the field of accounting, the basis of all decisions comes from the calculating and reporting of financial statements. Without these statements, a company may lack in organization skills which could lead to huge errors being made. These huge errors could cost a company millions of dollars. Knowing that, it is important to make sure that these reports are done accurately and in a timely fashion so that mistakes do not become catastrophes. Income Statement

The Income Statement can be considered the most important statement in most business scenarios. This statement provides an idea of the overall success and profitability of a company during a given period of time (Weygandt, 2006, pg. 55). This statement can be considered the most basic, since the other financial statements are based on information which is derived from the income statement. On the income statement are listed the overall revenue and expenses for the company. The revenue is listed first, normally to the right, while the expenses are listed, afterwards, normally to the left. This allows for a more visible breakdown in the difference between the two. After all the revenue and expenses have been listed on the statement, the difference of the two is then taken at the bottom for the net income, or net loss, whichever applies to the situation at hand. These reports are important to companies because they analyze the company as a whole. The overall financial situation of the company can be analyzed in the income statement by either highlighting the gain or loss in profits for a specific time frame. Retained Earnings Statement

The retained earnings statement is one that reports changes in retained earnings. Retained earnings are earnings that are maintained even after dividends have been subtracted from the retained earnings. Simply put, the retained earnings from the previous statement are added to the net income, which is derived from the income...
tracking img