preview

Four Basic Financial Statements

explanatory Essay
779 words
779 words
bookmark

Successful businesses require a significant amount knowledge in many subjects in order to be maintained. The owner of the business generally has most of the responsibilities and must be well versed in multiple fields of business. Accounting is essential to running a successful business because it allows business owners to remain organized and consistent. Accounting also provides business owners with an opportunity to share tangible information with their stockholders showing how profitable their business may or may not be.

Assets
Assets are defined as property owned by a person or company regarded as having value. Accounting refers to these properties as current assets. Currents assets are assets that a company expects to convert to cash or …show more content…

In this essay, the author

  • Explains that successful businesses require a significant amount of knowledge in many subjects in order to be maintained. accounting allows business owners to remain organized and consistent.
  • Defines assets as property owned by a person or company regarded as having value. accounting refers to these properties as current assets.
  • Explains the two types of liabilities: current liabilities and long-term liabilities. current liabilities are to be paid within the next year or operating cycle.
  • Explains that an income statement is used to report revenues and expenses for a specific period of time, including things like net loss and net income.
  • Explains that the retained earnings statement shows amounts and cause of changes in retained earnings during the period.
  • Explains that the balance sheet is used to report assets and claims to assets at a specific point in time.
  • Explains that the statement of cash flows provides answers to questions such as: how was cash used during the period?
  • Explains that accountants close temporary accounts to permanent accounts because they are always the beginning balance in the following accounting period. starting with zero balances makes it easier to track revenues and expenses.
  • Explains that stockholders equity represents the equity stake held on the books by a firm's investors.
  • Explains that many things that affect the cash flow of a business are not directly related to its income statement.

This includes things such as net loss and net income. Creditors and Financial users use net income because it can predict how well a company may or may not do in the future. Income statements also help investors decide what they want to do with their stock in the company based on previous and future performance. The net income equals to the revenues subtract the expenses: Net income = Revenues - Expenses. Retain Earnings Statement

The Retained Earnings Statement shows amounts and cause of changes in retained earnings during the period. The retained earnings for the month are calculated by taking the original amount in retained earnings adding net income and subtracting dividends. Knowing the ending balance in retained earnings is essential in preparing the balance …show more content…

The heading of a balance sheet must identify the company, the statement, and the date. Assets are listed first while liabilities and stock holders equity are listed after. When the balance sheet is complete assets must balance with the claims of assets.

Statement of Cash Flows
The statement of cash flows provides answers to questions such as: How was cash used during the period? Where did cash come from during the period? Some common things included in the statement of cash flow are the cash spent on operations, investing, and financing activities. Financial users are interested in the statement of cash flows because it allows them to see where most of the company's resources are going.

The difference between Net Income and Cash Flow statements

Many things that affect the cash flow of a business are not directly related to its income statement. For example, a company purchases a new set of computers; this expense affects the cash flow statement, but the balance sheet will refer to these newly purchased computers as an asset. It will start to be recorded on the income statement under accumulated depreciation of

Get Access