Finance

Running head: FINANCIAL STATEMENTS PAPER

Financial Statements Paper

Brent Thomas

University of Phoenix

ACC/280

Erina Master

April 26, 2010

Financial Statements Paper

This paper will be written to inform the reader about accounting and the basic fundamentals of what make up accounting. The four basic financial statements will be discussed as well as how each are interrelated and how each type of statement is important to different types of users. Each aspect of accounting that is to be discussed in this paper is for the sole purpose of informing the reader about accounting and the important factors that make up accounting.

Accounting is a system that allows an organization to understand its financial information. Accounting consists of three basic activities which are identifying, recording, and communicating the economic events of an organization to interested users. Economic events can be described as, but not limited to, selling of a product, paying for services, and payment of wages. Once a company has identified its economic events, the company then is able to record the events so that a history of financial activities can be provided. Recording consists of keeping a systematic, chronological diary of events, measured in dollars and cents (Weygandt, 2008). Once the company’s financial information has been indentified and then recorded, the company then needs to communicate the collected financial information to interested users via accounting reports. The most common type of accounting reports is known as financial statements.

Financial statements are prepared for companies in order to summarize accounting data. Each different type statement serves a purpose in providing financial data that is relevant for both internal and external users. One important aspect of these statements is that explanatory notes and supporting schedules are an integral part of every set of financial statements. There are four basic types of financial...