Financial Statement Differentiation Paper

Financial Statement Differentiation

Financial statements form the backbone of financial accounting. There are four different financial statements balance sheet, income statement, retained earnings statement, and statement of cash flows. A company’s assets, liabilities, expenses, and revenues are listed and logged for investors, creditors, and managements review.

The information provided by the balance sheet is what a business owns, and what it owes during a specific point in time. A balance contains record of cash, inventories, property, plant, and equipment investments, prepaid expenses, account receivables and other assets. This statement also includes liabilities such as A/P, dividends payable, accrued liabilities, income taxes payable, bonds payable, and other liabilities. Stockholder’s equity such as common stock and retained earnings are also found on a company’s balance sheet. According to "Analyzing the Balance Sheet (2011), the balance sheet is one of the three most important documents used by investors to understand the financial condition of a company” (para 3). 

Information provided by the income statement shows how successful a business performed reporting its revenues and expenses during a specific point in time. An income statement shows revenues from sales and other revenues and expenses such as cost of goods sold, income tax expenses, selling, marketing, and administrative expenses. Expenses are subtracted from the company’s revenue to determine the company’s net income.  Investors use this statement, according to "Analyzing Income Statements (2011), “to understand if a company is operating successfully and to help value a company's stock, and it's also used by creditors the creditworthiness of a company” (para 1).

The information provided in a retained earnings statement indicates how much of previous income was distributed to the company and other owners in the form of dividends. It also shows the amount retained in the business to...