June 18, 2012
One would think that acquiring a job that involves numbers would come easy and everyone would enjoy their job. When it comes to accounting to where it will show how accountants really get into numbers and how it all gets put on paper is amazing in its self. There is so much work involved in preparation for financial statements. In this paper it will describe the four basic financial statements and the purpose of each of the four financial statements. It will also discuss how internal and external users are able to use the financial statements and what it would benefit. In general accounting provides internal reports for a company so it may see where it is from a financial perspective.
The four financial statements are balance sheet, income statement, retained earnings statement, and statement of cash flows. A balance sheet is prepared with what assets and liabilities a company has. Claims to assets break up into two: claims of creditors and claims of owners. An income statement is an indication how successfully the business is achieving during a specific time frame. The third statement is a retained earnings statement which shows how much money was given to an individual and how much retained in the company that will allow the company to grow. The last but not least financial statement is the statement of cash flows. Statement of cash flows is a statement that shows how money was distributed meaning that cash was obtained during a specific time frame and it will show how it distributed. “The primary purpose of a statement of cash flows is to provide financial information about the cash receipts and cash payments of a business for a specific period of time”, (Kimmel, Weygandt, & Kieso, , "Financial Accounting").
There are two users of accounting and that is internal and external users. Internal users may consist of a manager or a supervisor who will plan, organize and run a business. An internal user can be a manager in marketing, production, finance director, and/or a company officer. The reports that these manager will need can be used for financial comparisons of operations. The internal uses can use these reports and can predict what income could come in from a new sales campaign. The statement also sets a rough estimate for the cash flow for next year. With the capabilities to determine all the information just listed a company is able to incorporate that into a financial statement for all to see.
With accounting information there are two types of external users which are investors and creditors. Investors are able to use accounting information and determine if they are going to buy a company, hold the company, or sell the stock. The second type of an external user would be the creditors, which are companies that are suppliers or a financial institution like a