Essay On Financial Statements

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Financial Statements
Financial statements are very important in a business. Financial statements help managers make important business decisions such as starting a business, these statements also help keep record of the company’s finances going in and out of the company. There are four basic types of financial statements. The four basic types of financial statements are income statements, retained earnings statements, balance sheets, and statement of cash flows. Each of the financial statement has its own purpose of existence. When preparing any of the four financial statements, the document should be titled. The title should state the company’s name, the name of the statement and the time period covered by the statement. In addition, there are many rules that govern the form and content of each of the above-mentioned financial statements.
The income statement shows how much revenue a company has earned over a certain period of time and the costs and expenses associated with earning that revenue. The income statement also shows the company’s net earnings or losses which show how much the company earned or lost, if anything, over the time frame indicated in the statement. This particular statement can be prepared using something called a single-step or a multiple-step approach. The single-step approach reports all revenue. The expenses are subtracted to get the actual income. The multiple-step income statement divides the results of business operations into separate categories or steps and enhances the financial statement of the company’s operations. From the income statement the net income is needed to complete the retained earnings statement. The retained earnings are reinvested in the company for various projects. The retained earnings are also the net income retained in the corporation, according to Kimmel, Weygandt, and Kieso. The retained earnings statement is the second financial statement; it summarizes the changes in retained earnings of the company during a period of time. This statement needs to be completed correctly to proceed with the next financial statement, the balance sheet.
The balance sheet is the network of the company. It reports the assets, liabilities, and stockholders’ equity of a business at a specific date. It records the book value of the company not the overall value of the company. This particular financial statement focuses on the accounting equation by showing the economic resources owned by an entity and the claims against those resources. Then finally there is the statement of cash flows; it summarizes information concerning the cash inflows and outflows for a specific period of time. It consists of three unique sections; the operating activities, investing activities, and the financing activities. The operating activities are the first part of the cash flow statement that analyzes the company’s cash flow from net income or losses. The second part of the cash flow statement is the investing activities, which generally include purchases or sales of long-term assets, such as
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