Financial Statements

Financial Statements

ACC /290

Elizabeth Denice Tudor

December 19, 2011

Information such as expenses, assets, liabilities, and revenues are arranged by format in four different types of statements; balance sheet, income statement, retained earnings statement, and statement of cash flows. These four financial statements are considered to be the backbone of financial accounting. The balance sheet shows the companies’ assets and liabilities at a certain time. Income statements show what the company has spent and made over a certain period of time. Cash flow statements show the exchange of money with the company and others during a certain period of time. A retained earnings statement shows the amount of previous income distributed to the company and other owners of the business in the form of dividends and how much retained for growth in the future (Kimmel, Weygandt, & Kieso, 2011).

Each statement has a purpose. Balance sheets provide detailed information about what the company owns and owes. Assets are items of value that the company owns. These can be sold or used by the company to make products or provide services. Some examples are; physical property, trademarks, patents, cash, and investments. Liabilities are the amounts owed to others. Some examples are; loans to launch new products, rent, and money owed to suppliers, payroll owed to employees, or taxes owed to government. Balance sheets also provide information about shareholder’s equity which is called capital or net worth. This amount is what would be left should the company sell its assets and paid off its liabilities.

Income statements are reports that show how much revenue a company earned over a certain period of time. It shows the costs and expenses that are associated with earning revenue. It shows the “bottom line”, the company’s net earnings or losses. It reveals how much the company lost or gained over a period of time. They have a basic setup. It begins with...