Financial Statement

Explain how various financial statements are used in management’s development of the business plan.

Financial statements are records that show an overview of an entity’s financial position at given period of time. There are four types of statements: balance sheet, income statement, cash-flow statement and the statement of retained earnings. The balance sheet provides a picture of a company’s asset’s and debt at a point in time. The balance sheet can be represented by the following equation Assets= Liabilities + Owners Equity. Assets can include equipment and inventory, liabilities include short and long term debt. Owner’s equity represents the difference between assest’s and liabilities.

The income statement shows a picture of the company’s earned revenue or profits at a specific time period. This can be monthly, quarterly, or yearly. The income statement is also known as the “Profit or Loss” statement. The income statement can be represented by the following equation: Sales(revenue) minus Expenses= Profits(income).

The statement of cash flow shows how cash flows in and out of a company. The cash-flow statement includes activities from operating, investing, and financing activities. This statement provides details on loans received or paid by the company, it shows any purchases made by the company. This statement is important in determining the amount of cash the company has available to pay its expenses and continue with business.

The statement of retained earnings shows the changes in an entity’s retained earnings over a specified period in time.

The financial statements are important because they show a company’s profitability and can help owners or investors make decisions on whether to make improvements or whether or not to invest in the company.

Explain how financial information can guide an entrepreneur in making important forecasts

Financial information can guide an entrepreneur in making important forecast decisions, because a proper...