December 18, 2012
There are four main types of financial statements in the account world. Each statement has a difference focus and importance. Managers, creditors, and investors to learn about a company’s financial status and to make decisions about the company use the financial statements. Each financial statement type will briefly be defined and explained in this paper. Also, why these statements are of interest to managers, creditors, and investors. According to Kimmel, Weygandt, and Kieso (2009), “Assets, liabilities, expenses, and revenues are of interest to users of accounting information. This information is arranged in the format of four different financial statements, which form the backbone of financial accounting”.
Types of Statements
Financial statements are used to record a business’ activities. They are used as key components to making business decisions. There are four financial statements. These statements are the income statement, balance sheet, retained earnings statement, and statement of cash flows.
An income statement is used best for tracking the operations of a business during a specific period of time (Kimmel, Weygandt, Kieso, 2009). The income statement provides information about a business’ revenues and expenses. The statement also shows a business’ net income or net loss by deducting expenses from the revenues.
The balance sheet shows a business’ assets and liabilities at a specific point in time (Kimmel, Weygandt, Kieso, 2009). It shows how much a business has in assets, liabilities and stockholders’ equity. The balance sheet explains how assets are a combination of stockholders’ equity and liabilities. Assets must balance out with liabilities and stockholders’ equity. Assets are divided into claims of creditors and owners. Stockholders’ equity is divided into retained earning and common stock (Kimmel, Weygandt, Kieso, 2009).