Managers within the firm, as well as the firm’s owners and lenders, keep track of the firm’s performance by reviewing its financial statements - income statement, balance sheet, and statement of cash flows. I will discuss several items regarding these financial statements. Firstly, I will discuss the purpose of the income statement and identify the major types of expenses that are shown on the income statement. Secondly, I will discuss the purpose of the balance sheet and identify the major types of assets, including the claims of creditors and owners shown on the balance sheet. Thirdly, I will discuss the three different accounts that comprise the owners’ equity section on a corporate balance sheet. Finally, I will discuss a statement of cash flows and the three standard sections contained therein.
The income statement reports the revenues generated and expenses incurred by a Firm over an accounting period, which is typically a quarter or year. It is a longer term analysis of a company’s financial position. The major types of expenses involved in an income statement include the costs of producing or manufacturing the products sold (COGs), and marketing expenses (Melicher & Norton, 2013, p. 357). Marketing expenses is an umbrella category because it can include various elements of marketing such as promotions, web page building, manufacturing of pamphlets, T-shirts, and other materials. Inclusive is the payment of persons to handle the keeping of records and accounting. Furthermore, operational expenses such as interest on loans and income taxes are also to be included in some cases.
The purpose of the balance sheet is to show to prospective investors and the like a co...
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... into their respective elements and explained. They are critical tools for any investor to truly understand what a company’s financial health is. For any proprietor looking for prospective investors and assistance in building their company, these tools should display to any one person in that role to understand what ramifications there are in investing in that company or business. It will present a common sense picture with robust figures and data.
Balance Sheet - Owner 's Equity | AccountingCoach. (n.d.). Retrieved from http://www.accountingcoach.com/balance-sheet/explanation/3
Melicher, R. W., & Norton, E. (2013). Introduction to finance: Markets, investments, and financial management (15th ed.).
The Three Parts of a Cash Flow Statement | Chron.com. (n.d.). Retrieved from http://smallbusiness.chron.com/three-parts-cash-flow-statement-43816.html
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