CheckPoint: Financial Statements xxxxxxxxxxxxxx XACC290
March 30, 2014
Lisa A. Parker, MBA
Financial statements is a very important function of the accounting department of a business. These statements allow management with information that allows them to make sound decisions. Allowing managers the opportunity to properly plan, organize and run a business based on the information from these forms. These forms also bring together different departments of a business such as the finance department, marketing department, human resources, and of course management.
There are four different financial statements used in businesses. They are balance sheets, income statements, retained earnings statement and statement of cash flow. Each of these statement offer information that will help management and those that might be interested in investing in a company or loaning money to a company.
Income statements are used to show the performance of a business during a certain time period. These forms report the success and failure of a company. These forms list a business’s revenue and expenses determining the net income of a company. A positive net income indicates a form of positivity within the company which is very useful to investors.
Retained earnings statements “indicates how much of previous income was distributed to investors and the owners in the form of dividends (University of Phoenix, 2011, p.11). The net income is gathered from the income statement and added to the amount of previous retained earnings. If the business did not gain any net income that it will be deducted from the previous retainage. Any dividends that are paid to investors are also placed on this form. Investors tend to monitor this form with the intent of determining the size of the dividends paid out to investors.
Balance sheets reports the assets and the liabilities of a company at a particular point in time. The basic accounting function of assets = liabilities + stockholders’ equity is used on this form. Items such as cash on hand, accounts receivable and supplies are considered assets. Notes payable, rent, and unpaid revenue are considered liabilities. Any monies paid out to stockholders such as dividends are also listed on this form. Assets and liabilities in the end should equal balancing out the company for a particular time period.
Statement of cash flows are used to provide the cash receipts and payments for a specific period