January 12, 2014
There are four basic financial statements: balance sheet, income statement, retained earnings statement, and statement of cash flows. These financial statements would include an overview of the assets, liabilities, expenses, and revenues of the business. Financial statements are useful not only to internal user; such as managers and employees, but also to external users; such as investors and creditors to communicate the company’s respective accounting information.
“The balance sheet reports assets and claims to assets at a specific point and time. Claims to assets are subdivided into two categories: claims of creditors and claims of owners” (Kimmel, Weygandt, & Kieso, 2011, p. 13). The claims of creditors are also known as liabilities, which are funds owed, and assets are the items that a company has or owns. The balance sheet is helpful to managers and employees to have a clear picture of the reported time period and creditors use this report to determine repayment of funds borrowed.
“The income statement reports the success of failure of the company’s operations for a period of time” (Kimmel, Weygandt, & Kieso, 2011, p. 11-12). This statement is also referred to as a profit and loss report (P&L). Internal users are able to view the income statement and determine how to allocate time and resources, while external users analyze this information to decide if an investment is worthwhile with that company. Companies have become better at publishing any discrepancies found in previously stated income statements in order to possible ethics violations (Kimmel, Weygandt, & Kieso, 2011, p. 12).
“The retained earnings statement shows the amounts and causes of changes in retained earnings during the period. The time period is the same as that covered by the income statement” (Kimmel, Weygandt, & Kieso, 2011, p. 13). Some companies do not pay...
References: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
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