ACC/290 Principles of Accounting I
Financial Statements Paper
When operating a business it is important that all shareholders are informed and allowed to access financial statements. Financial Statements are the core of financial accounting and allows shareholders to view all the income and expenses going in and out of the business. There are four basic financial statements that are all important in their own ways. Each report details a certain area of the company and can be filtered to monitor specific dates in the company’s history. The four financial statements include the income statement, the retained earnings statement, the balance sheet and the statement of cash flows.
The income statement records the success and failure of a company for a specific time period. The income statement typically lists a company’s revenue followed by its expenses. After all the expenses and income are recorded then the company can reflect its net income or net loss by subtracting all expenses from the income. Typically investors and people outside of the company use the balance sheet to dictate future income and trends. Future shareholders often use the balance sheet to help predict whether or not to buy into a company and become an investor in the company. Management that is inside the company also will use the balance sheet to predict future profits for the company. Balance sheets are often used in predicting and forecasting goals to be set and met. Companies always wish to exceed past profits and by using the balance sheets a company break down profit into yearly, quarterly, monthly and even weekly goals for associates inside a company.
The next financial statement is the retained earnings statement. The retained earnings statement is the report that reflects the net income that is retained for the business while showing the amounts and causes of changes occurring in a business during a given period of time. The period time is dictated by the time period that is given by the income statement. The first line of the statement reflects the beginning retained earnings amount. The next line adds the net income and then deducts dividends to determine the retained earnings at the end of a time period. After figuring the net income of a business the business then has to decide what portion of the income the company is going to retain and what portion to pay to the shareholders. By monitoring the retained earnings statement a company can monitor the dividend payment process. It is important for inside managers to know this information in order for the company to be transparent and help monitor the funds that are going in and out of the company.
The balance sheet reflects assets and claims to assets for a specific period of time. Claims to assets can be classified as claims of creditors and claims of owners. Claims of creditors are often called liabilities and claims of owners are often called stockholders’ equity. Creditors often use balance sheets to see the dependability of company repaying…