Financial Statements
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Financial Statements
According to Victoria Shoaf, the author of Financial Statements, “financial statements provide information of value to company officials as well as to various outsiders, such as investors and lenders of funds” (2007, p. 318). This paper will identify the four basic financial statements used in accounting and show how different statements are interrelated. Accounting statements are useful to many different stakeholders including managers, investors, creditors, and employees. An understanding of the different types of financial statements is necessary for all types of stakeholders to be successful in the world of business.
The four types of financial statements include an income statement, retained earnings statement, balance sheet, and statement of cash flows. “The income statement reports the success or profitability of the companys operations over a specific period of time” (Weygandt, 2008, p. 21 ). The retained earnings statement shows a summary of the changes in retained earnings for an allotted amount of time (Weygandt, p. 21, 2008). The balance sheet records the assets, liabilities, and stockholders of an organization for a specific date and the statement of cash flows provides a summary on record of cash in and cash out for a detailed period of time (Weygandt, p. 21, 2008). All four of the financial statements are interrelated and provide information for internal and external users of organizations.
The four financial statements are interrelated because information from one statements is also carried over to other statements. The net income can be found on the income statement but that dollar amount is also carried over and becomes the beginning balance of the retained earnings statement. The dollar amount of retained earnings at the end of a period from the retained earnings statements is also recorded on the balance sheet. Cash from the balance sheet is also recorded on the statements of cash flows financial statement (Weygandt, p. 21, 2008). The interrelated financial statements provide the account details and the financial health of organizations.
Many stakeholders including managers, investors, creditors, and employees use the information on the accounting statements to make decisions daily. It is the job of the accountant to accurately prepare the financial statements for the stakeholders to assist in their informed decision making abilities. Accountants provide vital information on a companies performance and profitability.
Organization managers use the financial statements to see a snapshot of the performance of the business. Managers can review the balance sheets to monitor the tangible and intangible goods of the organization. The main use of the financial statements for management is planning, goal setting, and monitoring the profitability of the organization. Employees of the organization