Financial Statement Relationship
Accounting and financial statements are the language of business. Financial statements provide information to help users such as managers and investors analyze accounting data to help make decisions, manage risk, and predict future outcomes. This week’s paper Team B will discuss how the statement interact with one another, how changing one affects other statements, and the importance to understand the relationship between the statements.
Financial statements are demonstrated in four different financial statements, which are balance sheet, income statement, retained earnings, and statement of cash flows. A balance sheet illustrates a financial picture at a point of time of what a business owns, which are the assets and what it owes, which are the liabilities. The income statement portrays how well a business performed during a period of time; and it reports revenue and expenses. The retained earnings statement indicates how much dividends are distributed and how much was retained in the business for future growth. Finally, the statement of cash flows presents the cash use in a business (Kimmell, et al, 2009). How the Statements Interact with One Another
The financial statements are all tied together to inform the company of its financial standing. There are several interactions within the financial statements: net income from the income statement is added to the beginning retained earnings to help identify the ending retained earnings. Once the ending retained earnings are calculated it is then added on to the balance sheet. The ending amount of cash on the balance sheet must match the ending amount of cash on the statement of cash flows. In order to get a full understanding of the financial standing of a company, a company must use the financial statements. One cannot get all the answers from one financial statement, all must be reviewed. This is why the interaction of the statements is key. How Changing One Affects the...
References: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons.
Knol. (2009). Retrieved from http://knol.google.com/k/accounting-principles-income-statement- balance-sheet#
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