A Brief Note On Financial Statements

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Financial Statements
According to "Marriam-Webster" (2014) the definition of accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results. Accounting does not just take place in the business world but also in people’s personal life. Balancing your check book and checking your bank account online is also a form of accounting. Having accountability of where or what money is going into is going into gives businesses a clear picture of what is taking places financially. This paper will cover he four basic financial statements and some of the roles they play in the accounting field.
Types of Financial Statements
The balance sheet is used to present a picture of what your business owns (assets) and what your business owes (liabilities) at a specific point in time (Kimmel, Weygandt, & Kieso, 2010). The basic equations used to set the balance sheet is assets = liabilities + stockholders’ equity. Assets are listed based on how quickly they will be converted into cash. Liabilities are listed based on their due dates and stockholders’ equity is the amount owners invested in the company’s stock plus or minus the company’s earnings or losses since inception (U.S Securities and Exchange Commission, 02/0).
To show how successfully your business performed during a period of time, you report its revenues and expenses in an income statement (Kimmel, Weygandt, & Kieso, 2010). The difference between revenue and expenses is the company’s net income. An income statement is usually compiled monthly to keep track of the company’s progress. Income statements also report earnings per share (or “EPS”). This calculation tells you how much money shareholders would receive if the company decided to distribute all of the net earnings for the period (U.S Securities and Exchange Commission, 02/0).
Cash flow statements report a company’s inflows and outflows of cash. This statement states if a company generates cash, what it is used for and the change in the cash balance during the period. A cash flow statement shows changes over time rather than absolute dollar amounts at a point in time (U.S Securities and Exchange Commission, 02/0). The statement of cash flows reports the cash effects of a company’s operating, investing, and financing activities to help investors, creditors, and others in their analysis of a company’s cash position (Kimmel, Weygandt, & Kieso, 2010).
Retained earnings is the net income retained in the corporation. The retained earnings statement shows the amounts and causes of changes in retained earnings during the period. The time period is the same as that covered by the income statement. (Kimmel, Weygandt, & Kieso, 2010). Some companies often pay no dividends to shareholders and that profit allows them to expand. The general calculation structure of the statement is: Beginning retained earnings + Net income - Dividends = Ending retained earnings.
Internal uses
The manager uses these financial statements to:
• Set employee pay rate
• Set budgets for the company
• View profit and loss of the company
• Brief shareholders on how the company is doing
• Determine if employees can receive advances (pay raise)
Employees may use those statements to:
• Bill customers that may owe the business
• Brief managers on any discrepancies in company funding
• Conduct business transactions with customers or other companies
• Verify sales or purchases that they may have specially done for the company
External Uses. To investors and creditors these
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