University of Phoenix
Financial Statement Review
Financial statements play a significant role in each and every type of business. The financial statements provide a wealth of information to auditors, creditors, investors, suppliers and other important venues that need access to this type of information. This paper will discuss four different types of financial statements and how they are utilized by vendors, creditors and others. The four financial statements that will be reviewed are the income statement, balance sheet, cash flow statements and statement of retained earnings.
Income Statement Beginning with the income statement, the information provided includes the amount of revenue that the company earns over a certain period of time. The period of time is usually a year or some a portion of a year. An income statement reveals the net worth or loss of a company reporting on the costs and expenses associated with the revenue earnings.
Balance Sheet The balance sheet is a snapshot which examines the business. This statement records assets, liabilities and the equity of a company at a particular point in time. The equation used for the balance sheet is assets = liabilities + shareholders\equity. Assets are those things that the company actually owns or controls. The liabilities are represented by the debt or financing that was taken out to acquire those assets. Equity is that money that has been provided by people or stockholders to keep the business afloat.
Statement of Cash Flows The statement of cash flows statements reports over a period of time and covers cash inflows and outflows. Generally the statement of cash flows refers to the day to day operations or operating cash flows, cash from investing and cash from financing. It is difficult for a company to manipulate the cash flow and therefore is a very important financial statement.
Statement of Retained Earnings The
References: Kimmel, Paul D. (2009) Accounting: Tools for Business Decision Making (3rd ed). John Wiley & Sons, Inc.