Financial Statement Paper

Submitted By keshtan
Words: 834
Pages: 4

Financial Statement Paper When people think of a business the first thing that most probably will come to mind is profit. Accounting has so much to do with profit and much more. Without accounting owners of the business would not be able to see what is truly going on with the company. Simple to understand and read, accounting is not hard to figure out, it simplifies the mess of a company into four basic sheets of paper. With any business, no matter how big or small, accounting helps summarize where they stand financially. The four basic, but informative statements do exactly that. These statements are, the balance sheet, the income statement, the statement of retained earnings and the statement of cash flow. The purpose of the balance sheet it simple, it “balances” the assets with the liabilities and the stockholders equity. It is a fairly simple statement that can be understood and written, using the balance sheet equation of assets are equal to the liabilities plus stockholder equity. The income state reports what most people want to know at the end of every month if not every day PROFIT. To get the pure profit that the owner can take home is simple, simply take the revenue and subtract the expense and the answer will be the net income, also known as profit. In the statement of retained earnings it shows the owner exactly how much his/her net income was, if there was any, after dividends have been distributed. Finally the statement of cash flow allows the owner to see exactly what is happening with every penny of the companies. Exactly how much cash are coming in and how much cash is going out. These statements are inner linked as well. All link to the balance sheet at the end of the day. These financial statements plus others are great tools that allow owners to see how their business is doing and make changing that can be positive for them. If they don’t understand where the money in their business is being spent then how can they begin to understand from where will the capital gain come from? Using an example of a hardworking business owner that is struggling to stay afloat with his business. This owner can be great at the service that he is providing to his customers, but he doesn’t do the “paperwork” after the day is done and even before he opens his store to understand exactly where a major portion of his money is being spent. Without knowing how the cash flow of the business is being spent, people can fall into great debt without knowing. These documents are great tools, which allow managers, owners and employees to comprehend where the business stands during that certain point in time. Figuring out payroll, finding out if they are making the reflected sales goals for that week are great ways of figuring out how the business is doing day by day. It also helps the owner know if they need to stock up on any supplies that might be selling out. These four valuable documents are great for the insider, managers, and owners, but it is just as valuable for external users as well. External users, such…