Principles of Accounting I 290
Dr. Zeneo Williams
June 18, 2013
To understand finances, the ability to decipher the data available must be attained. One of the tools used to do this is through financial statements. There are four prevalent statements used to achieve this. They are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. These statements are a summary of the fiscal activities of a business. Understanding the information contained in each one is necessary run a truly effective business.
Therefore, the balance sheet is the first financial statement that will be discussed. The purpose of the balance sheet as defined by McGraw-Hill (2009) is, “… to report the financial position (amount of assets, liabilities, and stockholders' equity) of an accounting entity at a particular point in time.” As per the definition, the balance sheet is made of three prime components which in turn are themselves made up of different components. Assets are made of several things such as, but not limited to, cash, accounts receivable, inventory, equipment, real estate and buildings. Liabilities include things such as accounts payable, notes payable, and salaries. Finally, stockholders’ equity is a sum of contributed capital and retained earnings giving you the total stockholders’ equity. These three components made of their subcomponents, give you the financial position of the company. The financial position of a company is the resources a company has and the sources of funding for those resources.
Next is the income statement. The income statement can also be known as the statement of earnings, statement of operations, or the statement of income. Whatever the company calls it, by definition of McGraw-Hill (2009) it is, “The income statement reports the accountant's primary measure of performance of a...
References: The Four Basic Financial Statements: An Overview. (2009, January 21). McGraw-Hill Higher Education. Retrieved June 18, 2013, from http://highered.mcgraw-hill.com/sites/0073324833/student_view0/ebook/chapter1/chbody1/the_four_basic_financial_statements__an_overview.html
Vogt, C. (2012, June 17). Why it Is Important for Small Business Managers to Constantly Analyze Their Financial Statements? | Chron.com. Small Business - Chron.com. Retrieved June 18, 2013, from http://smallbusiness.chron.com/important-small-business-managers-constantly-analyze-financial-statements-14643.html
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