Financial Statements Acc/280

Financial Statements

Financial Statements

In today’s capitalist society everything is recorded in numbers. Whether those numbers are in decimal, fraction, or whole number form, or a series of ones and zeroes; numbers are the underlying means of identifying, recording and communicating financial events, or accounting (Weygandt, 2008). Financial statements are used for analysis, recording, and communication of economic data. The four basic financial statements are: income statement, retained earnings statement, balance sheet, and statement of cash flows, each with their respective purpose and uses. In the content of this paper, I intend to briefly summarize each of the four financial statements, how they benefit interested users, and how they are interrelated with one another.

Income Statement

By simple definition an income statement “presents the revenue and expenses and resulting net income or net loss of a company for a specific period of time” (Wetgandt, 2008, p. 21). In essence this is the simplest of financial statements. Gross revenue is subtracted by expenses, leaving the remaining figure as either net income or net loss. With accumulation, these monthly, bi-monthly, quarterly, etc., income statements serve as a company’s financial history, and display profitability.

Interested Users

Interested users such as creditors will use this statement to track a company’s income, for the purposes of approving credit. Investors will analyze the same statement for similar but distinct reasons. Investors also want to insure the company’s profitability, but for the purpose of investment and return, as opposed to opening lines of credit.

Retained Earnings Statement

“Retained earnings statement[s] report… the changes in retained earnings for a specific period of time” (Weygandt, 2008, p. 21). In other words, retained earnings statements report information on a company’s overall accumulated capital. This statement goes beyond the monthly income...