Accountants, business owners, investors, creditors and employees use four basic financial statements of an organization to determine the financial well-being and future earnings potential of that organization. Financial statements are a key tool in seeing and understanding the past, present and future condition of an organization. What are these financial statements and what do they mean to the reader? Do the financial statements mean something completely different to an investor, creditor, and employee?
The first of the financial statements is the income statement. The income statement states the revenues and expenses in an understandable way that shows a clear picture of net income or net loss for the organization during a specific period. The main purpose of the income statement is to show how profitable an organization is and where there is room for improvement in that profitability. When one reads the income statement, he or she will see the revenues listed first then the expenses of the organization. The last item on the statement is the net loss or net income.
Second is the statement of stockholders equity. The statement of stockholders equity details changes in the investments made by the organizations owners, including stock issuances, stock repurchases, stock conversions, dividends paid, net income or net loss (McGladrey, Pullen, 2006). The third statement is the balance sheet. The balance sheet is a broad look at the organizations standing. The balance sheet shows the assets, liabilities, and stockholder 's equity for a specific period of time. The assets are listed at the top of the balance sheet, followed by the liabilities and stockholders ' equity. Assets and liabilities are divided into short-term and long-term. The bottom line of the balance sheet must be equal, which means assets must equal the liabilities and stockholders equity.
Fourth of the basic financial statements is the statement of cash flows. The
References: Mackevicius, J, & Senkus, K (2006). The System of Formation and Evaluation of the Information of Cash Flows. Journal of Business Economics and Management, 7, Retrieved January 29, 2007, from http://web.ebscohost.com/ehost/detail?vid=8&hid=13&sid=d065588d-bbd0-446d-aa9b-1b91d66af798%40sessionmgr3 McGladrey, Pullen, (2006). Reading and Understanding Financial Statements. Retrieved January 29, 2007, from Newkirk Proof Web site: http://www.newkirk.com/pdf_forms/rufreview.pdf Weygandt, J (2005). Financial Accounting. Hoboken, NJ: John Wiley & Sons Inc.. Retreived 1-29-07 from University of Phoenix online library, https://ecampus.phoenix.edu/content/eBookLibrary/content/eReader.h