Essay about Financial Differentiation Statement

Submitted By ryanlauren1
Words: 698
Pages: 3

Financial Statement Differentiation
Francis Rose Mateo
Alana Jones
University of Phoenix
December 3, 2012

Financial Statement Differentiation Financial accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users (Kimmel, 2009). Financial accounting supports businesses when evaluating and reporting their company’s financial information. Managers, shareholders, creditors, investors, and lenders use financial accounting to determine a company’s performance and future profitability. Financial statements of high interest to investors, creditors, and managements will be discuss and the steps they implement during their decision-making process A company’s success depends upon their financial reputation and their ability to preserve and balance their operating capitals. The process of documentation and reporting is vital to achieving financial accountability. The documentation must show how the financial transaction flows throughout the business. The key components of financial statements are Balance Sheet, Income Statement, Cash Flow Statement, and the Retained Earnings Statement useful in business financial operation that can get complicated without the aid of financial tools. The balance sheet statement shows the financial condition of the company through accounting equation of current or fixed equity and liabilities. The income statement reveals profits and losses from daily businesses operations. The income statement shows the operating income before and after taxes, loss, gains, and net income. The statement of retained earning provides statement of the company’s net worth useful to investors and shareholders. Gains retained by the company are reinvested and reserve for a particular goal such as to pay off debt or buy additional assets. Cash flow statement reports cash receipts and payment for a given time, including adjusted net income to remove noncash revenues and expenses (Kimmel, Weygandt, & Kieso, 2009). The balance sheet statement are useful to managers when evaluating financial condition of their department, good, bad, current or long term. The balance sheet shows assets and liabilities and how best to pay its debts. Balance sheet assists managers in their decision-making process. For example, a manager can review the balance sheet when evaluating a need to purchase new equipment and whether to buy the equipment through assets or liability. Managers can make decisions on whether to buy new equipment on debt is the right move for the company or it can be an investment that can create future assets for the company. Creditors can use all four financial statements during their decision making process. Statement of cash flow is perhaps the most relevant information evaluated by creditors. Cash Flow statement provides specific details of financial activity necessary when determining a company’s ability to pay-off their debt. In addition, the statement can assist creditors to determine sustainability and future profitability of the company. For example, a company’s income statement may show assets, but cash