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Financial Statements Paper
April 5th 2010
Accounting is a process that businesses use to help with the organization of finances. The four basic financial statements that businesses use are income, retained earnings, balance sheet, and statement of cash flow. Each financial statement has different affects on managers, investors, creditors, and employees. By reviewing the four basic financial statements of a business one can determine if the business is worth investing in.
Accounting is made up of three basic parts; identifies, records, and communicates. For an example Best Buy would identify an economic event relevant. One relevant example would be the sales of Apple’s new technology the Ipad. The next step would be to record the sales of the Ipad across the company. While recording the sales, Best Buy will also record the sales of accessories, and other related products. The last step in this process is to communicate the findings. Best Buy will prepare a financial statement for the quarter, and then release it to Wall Street. Accounting helps a company such as Best Buy to identify gaps in business, as well recognizing the strengths.
The first of the four financial statements would be the income statement. An income statement presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time (Weygandt, 2008, p. 21). Best Buy refers to this statement a profit and lost statement. The income statement is the statement use to see how much money is coming in, and how much is being paid out in the specific time period. The managers also can use this statement to coach and train employees. This statement helps employees see a different side of the business, and how decisions they make can affect the company’s finances. This statement shows investors and creditors if the company made or lost money.
A retained earnings statement summarizes the changes in retained...