Finacial Statements Paper

Financial Statements Paper

Sherry Malloy

ACC/290

April 3, 2014

Harri Eloranta

Financial Statements Paper

The purpose of this paper is to identify the four basic financial statements and describe the purpose of each of them. To discuss how financial statements would be useful to internal users, such as managers and employees and how the financial statements would be useful to external users such as investors and editors.

One of the four basic financial statements is the income statement. A firm's revenues, expenses, gains and losses are all listed on this type of statement. The expenses on the income statement are the costs associated with earning the revenue. Revenue is money earned from a company’s normal day to day business operations. When a company sells one of its assets, it can experience a loss or a capital gain. Revenues minus expenses, plus gains minus losses, equal net income or net loss. The dollar amount of net income listed on the income statement is also found on the cash flow statement under the operating activities section.

Balance sheet is another one of the four financial statements. This statement includes the elements of the accounting equation, assets equal liabilities plus shareholders’ equity. The assets that are on the balance sheet are classified in two ways, either current or fixed assets. Current assets are assets that are the most liquid, meaning they can easily convert to cash. Fixed assets are long-termed assets. Just like assets, liabilities are also classified as long-term. Current liabilities are usually moneys owed to creditors in less than a year. Long-term liabilities are due in one year or later. Shareholders’ equity is the total amount of equity in the firm.

Then there are cash flow statements. These...