January 14, 2013
Financial Statement Differentiation The financial statements show the history of an organization’s business transactions and communication through numbers. The unique reports include the income statement, the retained earnings statement, the balance sheet, and the statement of cash flows in which each one is used for a different purpose but interact with one another in some way. Each statement produces numbers that are needed in other statements, giving the history of the business’ financial health. Looking into the financial records of a business is important to see how well or not a company is doing business wise. The view of the records is important to internal and external users alike. Investors, creditors, and management all have an interest in a company’s history and the unique statements help them gain insight into how the business is performing. The financial accountability of an organization is obtained within the company’s financial statements.
Income Statement The income statement’s purpose is to show how well the business performed during a period of time such as fiscal year, quarter, or month. The income statement reports on the success or failure of the company’s operations through revenues and expenses (Kimmel, Weygandt, & Keiso, 2011). An income statement shows the cost and expenses associated with earning revenue (The income statement is an important phase of the financial statement for creditors. The creditors evaluate a business and determine whether it will be able to repay funds owed by a specific time. They focus on the income statement to help make predictions about future earnings while evaluating the task to repay monies owed. While creditors focus on an income statement for several reasons, an investor is interested in a company’s past net income because it provides useful information for predicting future net income (Kimmel, Weygandt, & Keiso, 2011). Investors are more concerned with getting a return on their investment, so they are more interested in the cash flows statement.
Retained Earnings Statement The retained earnings statement is a financial statement outlining the changes in retained earnings for a specified period. The statement of retained earnings is prepared in accordance with generally accepted accounting principles (Investopedia, 2015). The statement can be included as a separate statement to the income statement or balance sheet. Other names used to refer to the retained earnings statement are statement of shareholders equity, owner’s equity, or equity statement.
Balance Sheet The balance sheet provides detailed information about a company’s assets, liabilities, and shareholders’ equity. The items in which a company owns are considered assets. The assets can be either sold to make products or used to provide services that can be sold. The assets include physical property such as equipment, inventory, plants, and trucks. The balance sheet is used to determine whether cash on hand is sufficient for immediate cash needs (Kimmel, Weygandt, & Keiso, 2011). The balance sheet is also used to evaluate the relationship between debt and stockholder’s equity to determine whether a company has a satisfactory proportion of debt and common stock financing (Kimmel, Weygandt, & Keiso, 2011). Liabilities are considered what a company owes to others like payroll for company…