Financial Statements

Financial Statements

Melissa Mauk

ACC 220

September 23, 2012

Jameson Monteiro

Financial Statements

A balance sheet shows how much a business owes and how much it has a certain point in time. The amount a business owes to its creditors for debts and other obligations are called liabilities. “The claims of owners are called stockholder’s equity” (Introduction to Financial Statement). The amount of money and other resources a company owns are called assets. A balance sheet lists assets first, then liabilities and stockholder’s equity. A balance sheet is used to determine whether a company can pay a creditor back and to see if the company has enough inventory for future sales. It is also used to see how if the company has enough cash on hand for its immediate needs. The balance sheet is dependent on the results of the retained earnings statement.

“The income statement is to report the success or failure of the company’s operations for a period of time” (Introduction to Financial Statements). An income statement reports the company’s revenues followed by its expenses. Income statements are necessary to a company because investors want to know how much a company netted in the past because it gives them an idea of what the future profit may be.

A retained earnings statement shows the amount of the previous income went to the business owner in the form of dividends and how much was left for the business to grow in the future. This statement is dependent on the results of the income statement. The retained earnings statement covers the same period of time that the income statement covers. A retained earnings statement can be used to evaluate dividend payments. This helps investors decide on choosing your company. The ending amount of the retained earnings statement is reported on the balance sheet as the retained earnings amount.

A statement of cash flows shows where your business received its cash and how that cash was used during a period of time. A...