Four Basic Financial Statements

Four Basic Financial Statements

University of Phoenix

ACC362: Financial Accounting I

Eric Oechsner

Four Basic Financial Statements

The language of a business is accounting. The accounting tells how a business has transpired throughout any length of time. Four basic financial statements tell the accounting information for a business. The four financial statements are income statements, retained earnings statements, balance sheets, and statements of cash flows. This essay will discuss how these statements are used and how they are interrelated. All four of these financial statements are equally important to the financial standing of a business.

The first financial statement is the income statement. “An income statement presents the revenues and expenses and resulting in net income or net loss for a company for a specific period of time” (Kimmel, Weygandt, and Kieso, 2005, p. 22). The income statement is a reporting tool used by companies to illustrate revenues and expenses, ultimately determining the profit or loss for a specific period.

The second financial statement is the retained earnings statement. “A retained earnings statement summarizes the changes in retained earnings for a specific period of time” (Kimmel, Weygandt, and Kieso, 2005, p.22). The financial statement is a report used to report changes in a company’s net income and dividends.

The next statement to be discussed is the balance sheet. “A balance sheet reports the assets, liabilities, and stockholders’ equity of a business enterprise at a specific date” (Kimmel, Weygandt, and Kieso, 2005, p. 22). This report is a broad overview of a company’s fiscal standing.

The last financial statement is the statement of cash flows. “A statement of cash flows summarizes information concerning the cash inflows (receipts) and the cash outflows (payments) for a specific period of time” (Kimmel, Weygandt, and Kieso, 2005, p. 22). A statement of cash flows tells a company the details of...