Introduction There are several methods used to measure the financial health of a company with the use of various statements all providing important financial data used by varying parties. Knowing and understanding the financial results of the company’s operations over a specific time period will aid in better decision making and future planning. Income Statements Managers and business owners use income statements as a tool to visualize their profits and losses over a specific time period. Income statements can greatly differ between companies based on the industry. These reports are typically comprised of several major types of expenses to include; gross profit, operating income, income before taxes, and net income (Melicher …show more content…
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 …show more content…
The statement of cash flows is beneficial to use with accrual accounting, because cash flows is a compilation of cash receipts, expenses paid in cash, and any changes in cash held by a company not including operating expenses (Epstein, 2011). A statement of cash flows is segmented into three standard sections or activities to include; operating, investing, and financing. Operating activities consists of the amount cash expended or the cash consumed by a company to conduct operating activities. Investing activities consists of any long term assets purchased or sold, such as equipment or facilities, or short term investments, such as stocks and bonds, sold during a specific time period (Epstein, 2011). Thirdly, financial activities consist of any payments made towards debts, or any debts incurred during a specific time
The balance sheet displays the status of an entity at a specific time. Contrary to the balance sheet, income statements and statements of cash flows cover periods over time. These two forms provide the information on why the balance sheet has changed. To receive the information that contributes to the changes related to a change in retained income, the income statement will provide a detailed summary. To receive an explanation of the events that lead to modifications in cash, received and paid, the statement of cash flows will be utilized to provide that information (Horngren, 2014, p.
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).
• Accounting (financial) statements for a period of several years. The statements include the balance sheet and profit and loss account, in addition, cash flow statement, capital and the annex to the financial balance.
The Statement of financial position is a very useful tool full of information showing the position of an entity. However within this sheet of information lies a lot of limitations and problems. This essay will pinpoint some of the limitations and problems within the balance sheet. These limitations include how the balance sheet does not reflect the true financial position of a business, it does not reflect assets that can’t be measured monetarily and it also has a huge amount of estimated values and not actual verified values so this causes some controversy within the entity and its true position on the market. As well as the problems within the balance sheet there also lies a lot of problems with what’s left out of the balance sheet.
Also known as the Statement of Cash Flows, the document is separated into three distinct sections: operating activities, investing activities, and financing activities. An additional section may be added to the financial statement which is often referred to as supplemental information. The purpose of the financial statement is to illustrate cash inflows and outflows that come from popular accounts like Accounts Receivable, Inventory, Accounts Payable, Equipment, and Bonds Payable. The resulting net increase or net decrease in Cash represents the difference between the beginning of the year and the end of the year (Statement of Cash Flows
There are four financial statements which are the income statement, statement of owner’s equity, balance sheet, and the statement of cash flows.
Income statements are set up stepwise. Starting at the top we see the total amount of sales made during the accounting period. As you go down, you subtract costs and additional operating expenses related to producing the revenue. After subtracting all expenses, you learn how much your company netted or lost during the accounting period. This is our “bottom line.”
The progress of any business depends on the fine evaluation and distribution of monetary assets. Incomes and expenditures of a company are vital in understanding profit or loss of a company. Hence, income statements are formulated in order to track the cash flow and create decisive plans for the progress of a business. It is also known as profit and loss account, revenue statements, earning statements and operating statements. Keep in mind that an income statement is only part of a company’s financial statement. Hence, with income statement template you can easily avail it as per your requirements.
Financial statements can provide a wealth of information about a given organization. These statements provide information about the company’s financial position, cash flows, operations, performance and changes in the financial position. This information may be used as part of the decision making process for employees, shareholders, investors and competitors. Based upon these financial statements, key ratios are used to provide additional insight as to the financial health of a given company. Being familiar with financial statements can increase financial literacy. For this discussion, Citigroup’s (Citi) financial statements will be reviewed.
Although the balance is useful, it has its limitations. The primary limitation of the balance sheet is that it does not reflect the current value or worth of a company. In essence the importance of the balance is that it provides the financial position of a company on a particular date. It helps external users assess the financial relationship between assets, liabilities, and the owner’s equity. Assets and liabilities are usually classified as either current or long term and presented in descending order of liquidity. (W. Steve Albrecht, 2002)
The statement of cash flows reports a firm’s major cash inflows and outflows for a period. This statement provides useful information about a company’s ability to generate cash from operations, maintain and expand its operating capacity, meeting its financial obligations, and pay dividends. There are three types of activities to look at in this statement, which are cash flows from operating activities, investing activities, and financial activities (3, 2005).
This statement summarizes the assets, liabilities, and net worth (stockholders’ equity) that Home Depot held at a specific point in time (Schroeder, Clark & Cathey, 2010, p. 212). The purpose of the balance sheet is to give users a clear ideal of Home Depot’s financial strength and capabilities of the company’s business. It is important that the balance sheet is used to determine if Home Depot has sufficient cash for immediate needs; the balance sheet is also used to evaluate the relationship between debt and owner’s equity (Kimmel, Weygandt & Kieso, 2013,
Balance sheet-: Balance sheet is a statement at the book value of all of the assets and liabilities of a business or other organization present a particular date such as the end of the financial year. It is known as a balance sheet because it reflection accounting identity the components of the balance sheets. The balance sheet must follow the following formula:
This means that the expenses from acquiring these resources are recorded as assets in the company’s balance sheet. The costs will then show on the balance sheet in the coming financial years through amortisation.
The statement of the financial position is also known as balance sheet has shown the accounting equation, Assests = Liabilities + Equity. The statement of the financial position shows the current assets, liabilities and equity owned by a business during an accounting period.