University of Phoenix Xaac 290c - Financial Statement - Week 1

Financial Statements

Rachel Salmon

XACC/290C

December 13, 2013

Kathleen O’Keefe

Financial statements is a more common term used to refer to statements produced at the end of the accounting periods, such as the income statement, balance sheet, cash flow statement and the statement of owner’s equity.

The income statement is a financial statement which helps to calculate the gross profit and the net profit of the company for a particular year. Most businesses prepare the income statement because they compare revenue with expenses and check the performance. If the revenue exceeds the expenses, the business has earned a profit and vice versa. The information contained in the income statement is not only, but also useful for the internal users of the business such as the managers and owners but however it is also useful for the external users such as government, investors and creditors’.

For internal users, income statement helps to check the performance and profitability of the business. Owners invest their money to make a profit and thus it is necessary for them to check the amount of money they have earned in an accounting period. In an organization managers and employees are able to achieve wage increases and/or bonuses if the business makes a profit. Moreover, income statements also help to check the revenues and expenses of the business so managers can decrease their unnecessary expenses. Creditors also take the help of the income statement to check whether the business has enough revenue to pay their bills.

The balance sheet is another financial statement which shows the assets, liabilities and the capital of the business. This document is prepared at the end of the accounting period, and it helps to check the liquidity position and the current health of the organization. Internal users, such as managers and owners take the help of the balance sheet to check the liquidity of the business. This document helps managers to manage assets...