Week 2 Assignment: Financial Statements
There are several tools that are used by accountants to assist in determining the value of a company. These include balance sheets, retained earnings statements, and statements of cash flow. A balance sheet is comprised of a company’s assets and liabilities. Assets are resources a business has and include cash, accounts receivable, and materials on hand. These are then compared with liabilities, or money owed, to determine the net worth of a business.
An income statement provides a company with a general idea of its success during a period of time. It is a comparison of expenses and revenues used to determine the net income. These statements are used by internal and external users to make business decisions regarding loans, investments, and future purchases.
The retained earnings statement subtracts the stock dividends paid by a company from the net income to determine the retained earnings during a period of time. Dividends are the portion of earnings that belong to current stockholders. Stockholders’ equity is an owner’s claim to a percentage of the company and includes the stock owned and the amount of earnings retained in the company. These retained earnings are the amount owed to a stockholder that has not yet been paid. This is usually because a larger company will choose to reinvest the owner’s money in the company rather than immediately paying dividends.
These statements are