July 22, 2013
Four Financial Statements
Opening a business, becoming successful and maintaining the success is a process. Maintaining the financial portion of the organization is vital to the success and well-being of the company. Accounting is the department that is held responsible for the financial aspect of the organization. These Accountants start off by using four basic financial statements. A balance sheet, Income, Cash flow, and retained earning statements, these statements are used to keep record of any financial movements made by the organization. In the following paragraphs these statements will be described in greater detail along with the use internally such as managers and employees and externally such as investors and creditors.
A balance sheet, which gives an overall of the organizations financial situation by showing the total assets of a business, including liabilities plus equity. Current assets can include cash, accounts receivable, inventory and prepayments for insurance. The balance sheet can be used internally by team members of management to evaluate, control and plan operations.
Second on the list would be Income statements show the net income of the business after paying out expenses, which can include product acquisition, wages, advertising, taxes and capital losses. Investors and creditors will use the information on the income statement to determine whether or not they will invest in stocks and if the future earning are profitable. Internally management can also see where they stand in terms of success or failure for periods at a time.
Third, A cash flow statement. Investors need to know how well the company manages cash inflows and outflows because companies must have adequate cash to pay for expenses and purchases. A cash flow statement shows the amount of increase or decrease in cash that the company has on hand every quarter. These questions come to mind for investors, creditors and internally management. “Where did cash come from during the period? How was cash used during the period? What was the change in the cash balance during the period?” (Kimmel, Weygand, & Kieso, , 2010). With these questions in mind they help make difficult decision making a little less complicated.
The last basic financial statement consist of a retained earnings statement. This shows the equity of shareholders or owners at the end of a financial period, which includes the value of each share plus gains or minus losses and the withdrawal of or addition to company funds on the part of owners and shareholders. Knowing the overall pay off of an organizations to their stockholders creditors and investors tells a lot about the company and gives investors and team management grounds to know whether to invest and where to make improvements and or adjustments. Internally this helps determine the cost at which a share can be sold. This can be positive or negative because it determines on the organizations profits if they are good there are more stocks that are purchased and the price can be controlled based on the demand. If they are negative stock prices go down and less profit is made if any.
“Investors, creditors, and regulatory agencies generally focus their analysis of financial statements on the company as