Companies use several tools such as a balance sheet to make sound business decisions. A balance sheet is a quantitative summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders' equity) Also, called statement of condition. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings. Another tool used by companies to make decisions is a company's Income statement. An income statement is an accounting of sales, expenses, and net profit for a given period. The purpose of this report is to view the company's performance (profits and losses) over a designated period of time. It lists the company's revenues and its debts during operational and non operational periods. The balance sheet works in conjunction with the income statement: both deals with matters that concern investors.
The next tool used is called a retained earnings statement. A retained earnings statement is a financial statement that lists a firm's accumulated retained earnings and net income that has been paid as dividends to stockholders in the current period. Also can be known as, statement of retained earnings. It is important for everyone to understand that retained earnings do not represent surplus cash or cash left over after the payment of dividends. Rather, retained earnings demonstrate what a company did with its profits; they are the amount of profit the company has reinvested in the business since its inception. These reinvestments are either asset purchases or liability reductions. Next in line is the statement of Cash flows. Statement of cash flows is a summary of a company's cash flow over a given period of time. What can the statement of cash flows tell us?...
References: • This is the site used for definitions under financial statements, http://www.investorwords.com/1957/financial_statement.html
• This is the site I read about each topic, some topics are in other topics. http://www.accountingcoach.com/explanations.html
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