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The Key Financial Statements of a Business The success of business is not based on how a company is able to effectively convert material and labor into goods and services. Although it is important to ascertain whether the customers are satisfied with the delivery of the merchandise, it is important that the company is able to keep up all of its financial statements. These statements tell the story of how a certain business operates (Biery, 2013). Meaning, financial statements will ascertain the performance of the company and its corresponding value, and how matters relating to the company's success should be managed. For the purposes of this paper, the income tax statement, the balance sheet, and the cash flow statement will be discussed. …show more content…
The information included in this financial statement is the company's assets and liabilities and the accounting and finance of the owner (Shah, 2009). Through the balance sheet, a manager or an entrepreneur is able to know how much money he has to pay, or how much money does he expect to earn in his business (Shah, 2009). Clearly, the balance sheet is necessary because it gives the owner the overall picture of the financial health of the business (Shah, 2009). When owners are aware of their business' worth, they are able to come up with better management decisions which will benefit the business in the long …show more content…
I have to consider the pulse of the business so that investors are attracted to invest. I have to make sure that the revenues will allow the business to survive regardless of what crisis it will face in the future. Through the balance sheet, I am able to determine what the company owns and what it owes in each day. The information provided in the income statement will make me aware of what products the company sells and its costs over a specific period of time. Through the statement of cash flows, I am able to determine the amount of cash that comes into the business and the amount of cash that goes out for the same purpose. Through these financial statements, I am able to compare the business to others in the same market and undertake certain endeavors that would ensure that the company does not only maintain its competence in the industry, but it is also able to provide the customers’ needs and wants and at the same time, earning more profits for the success of the
Financial statement users around the globe use financial statements to evaluate the performance of companies (Fundamentals of Financial Accounting, 2006). In order to locate a company’s reported assets, liabilities, expenses and revenues, statement users rely on four types of financial statements. The four financial statements include: Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows (Fundamentals of Financial Accounting, 2006, p. 6). Each of these reports provides different information to the financial statement user. The Balance Sheet reports at a point in time: a company’s assets (what it owns), liabilities (what it owes) and stockholder’s equity (what is left over for the owners) (Fundamentals of Financial Accounting, 2006, p.7). The Income Statement shows whether a business made a profit (net income) during a specific period of time (Fundamentals of Financial Accounting, 2006, p. 10). The Statement of Retained Earnings illustrates what portions of the company’s earnings was paid to stockholders and retained by the company for future operations (Fundamentals of Financial Accounting, 2006, p.12). Finally, the Statement of Cash Flows reports summarizes how a business’ “operating, investing, and financial activities caused its cash balance to change over a particular range of time” (Fundamentals of Financial Accounting, 2006, p.13).
Each one of these reports give a detailed account of how the company is earning money, where the money is flowing, and the net profits the company is earning. These reports are an important part of the annual report and give a base account of earnings for the company along with how much cash is needed to pay off any debts accumulated over time. This analysis of each report goes into detail and gives a summary how money is distributed in the corporation as well as if the company is financially able to pay off accumulated debts (Temte, 2003). This paper will show each of these reports and how they define what decisions will be made in the future of the company in question. It will also determine what problems need to be addressed in order to fix existing problems within the corporate structure along with what plans need to be made to fix them.
“The objective of financial statements is to provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.”
The statement displays the relationship of the net income to the changes in the cash balances. It is important to understand that cash balances can wane despite an increase in net revenue (Horngren, 2014, p. 674). The statement also aids in the evaluation of management’s use of cash and management’s generation, defining a company’s capability to pay dividends and interest to pay debts when the time comes to pay them, and forecasting upcoming cash flows (Horngren, 2014, p. 674). The balance sheet displays the status of an entity at a specific time. Contrary to the balance sheet, income statements and cash flows cover periods over time.
There are many companies that use financial accounting statements to maintain a financially sound organization. Bookkeepers are able to give a report of the company’s financial health through these statements. These statements are reports that contain information pertaining to the organization’s financial position and results of their activities. (Finkler, et, al., 2013). The purpose of Management's discussion and analysis (MD&A), is to provides an overview of previous operations to develop a framework to meet the goals for the next year (Finkler, et, al., 2013). These outcomes can highlight areas of positive and negative managerial styles and decision making. It offers a breakdown of the overall financial position and results of operations to assist users in assessing whether that financial position has improved or deteriorated as a result of the year’s activities. (Finkler, et, al., 2013).
A balance sheet is an educational, financial tool that summarizes a company’s assets, liabilities, and net worth during a particular time frame. The data provided by the balance sheet informs the organizational leaders of the financial status of the firm. Moreover, the balance sheet displays what the company owns and owes (Edmonds, Tsay, & Olds, 2011). Completing as well as understanding the numbers is equally as critical as the meaning behind the figures.
This statement provides management, owners, and executives with a snapshot of a company’s financial position within a specific time period. This is not to be confused with an income statement which focuses on the company’s operations. The major types of assets indicated on a balance sheet include; cash, accounts receivable, inventories, current, other, total, net, and other long-term assets (Melicher & Norton, 2014). Claims against a company’s assets can be made by creditors, owners, or
The financial position of the company is present about the economic resources. This enables users of the
Using financial statements for a business will tell them what is coming in, if there is any money missing, and how much money the company is putting out. Financial statements will also prove if the business will stay afloat or will go bankrupt. Worldcom wanted to make more money and stay afloat so they cooked their books to make it look like they ...
Financial statements are essential to the success of a small business. Financial statements have a value that goes far beyond preparing tax returns or applying for loans, and can be used as a roadmap to steer you in the right direction and help you avoid costly breakdowns (U.S. Small Business Administration [USSBA] 2014).
Managers, firm owners, and investors keep track of their firm performance. Financial statements are used to keep track of the strengths and weaknesses of firms. The three major financial statements used are income statements, balance sheets, and statement of cash flows. Financial ratios are also used to measure where a company stands within itself and in its industry norms. This analysis is called Financial Statement Analysis. Financial Statement Analysis gives understanding to a firm’s financial position at a given point of time and predictions for the future.
...per how important accounting systems has been for business such as corporation, Partnership, and Sole proprietorship. We defined what accounting information system is and how it works in business. We discussed why every business should have Accounting Information system because it helps us answer questions such as should we expend our company overseas? Do we have enough payroll for our employees? Accounting information systems can also help us understand what types of inventory we should use. As we discussed basic structures of assets, liabilities, and stock holder’s equity. We will also discussed four basic financial statements and effects of Revenues, expenses and dividends. Finally also discussed difference between net income and cash flow. We learned why business owner should have accounting information systems and what impact it could have on his business.
White, Gerald, Ashwinpaul Sondhi, and Haim Fried. The Analysis and Use of Financial Statements. June 1997. John Wiley & Sons. 2nd Edition.
Business owners’ use at least four major financial statements to keep a grasps on their company 's finances during a specific time frame. Financial statements are usually completed monthly, quarterly, semiannually and annually. The major financial statements include the statement of cash flows, the statement of stockholder 's equity, the balance sheet, and the income statement. Each one provides a different awareness into a company 's financial status in the stated period.
Accounting information can be used by business owners to carry out a financial analysis of the businesses and their operations. The use of this information for such function is attributed to the fact that it usually contains quantitative and qualitative characteristics. While quantitative characteristics are the calculations of financial transactions while qualitative characteristics can be described as the business owner’s apparent significance of financial information. In essence, qualitative characteristics of financial information are attributes that contribute to the usefulness of information provided in financial statements. Since these qualities can sometimes be at odds with each other, they need to be balanced against each other. In addition, these qualities are essential in decision making because they provide the basis for assessing businesses and the effectiveness of their operations.