XACC/290-Week 1 Assignment
There are four major financial statements that are a key element of accounting, but are also important for everyone when they elect to utilize them and are just as useful to managers and employees as they are to the accountants. They are important to anyone who needs to know the financial standing and general health of a company. I personally use most of these statements to evaluate the needs of the company I work for, so that I can scale back in certain parts in order to increase the focus on others. I also use them in my personal life to manage my own funds.
The first and probably most often used by the majority of people is a Balance Sheet, which is a statement of the overall financial position of a business or entity. This statement serves as an overview of your current financial standing, and would be useful to keep track of accounts and where the money is allocated. It is essentially taking into account your all of your asset, liabilities and equity accounts. I have multiple bank accounts and if it weren’t for this statement I probably would not know how much money I have multiple bank accounts and use a balance sheet every month to see the status of all of my accounts.
The second of the four major financial statements is probably the most simple, and is called an income statement. I would personally call this a profit and loss statement when using it in relation to running a business. It is valuable to determine whether or not you're making any money as a company or business and is in essence, a statement of your income minus expenses. I would use this to determine what I have left over after I take all the money that I have made in a particular endeavor and deduct from that what it costs me to embark on that endeavor. I use a simple version of this that is my income minus all the bills I have like utilities, gas for my car, food, insurance, etc. This is how I create a personal budget.
The third is cash flow statement, which would be a statement representing movements and activities in cash and bank balances over a given period. This basically helps you keep track of how and where your money is moving. I use one of these to ensure that all of my funds are going where they should and that I am not wasting large sums of money on anything that I don’t need to be. A few months ago, I had a cash flow issue because…