Financial Statements Paper

Running head: FINANCIAL STATEMENTS PAPER

Financial Statements Paper

ACC/280

University of Phoenix

May 4th, 2010

Financial Statements Paper

Proper accounting is very important for companies in order to keep their financial records up to date and correct. Without accounting, financial record keeping would be a disaster for any company. This paper is going to explain in detail the purpose of accounting and identify the four basic financial statements. It will also explain how they are interrelated with each other and why they are useful to managers, investors, creditors, and employees.

“Accounting consists of three basic activities—it identifies, records, and communicates the economic events of an organization to interested users” (Weygandt, 2008, p.4). When a company identifies its economic events, it has to choose the events that are relevant to the business. After the events of a company have been identified, they must be recorded. They are recorded in order to keep a history of the economic events that have happened within that organization during a period of time. Communicating the records simply means that the company shares the information they have gathered from identifying and recording their financial events. These three things make up the accounting process. The purpose of accounting is to keep a history of financial records for a company within a specific period of time. Financial accounting can provide records for specific dates. For example, if an entrepreneur looking to invest in a company wants to know their financial records for the years 2005 through 2007, accounting makes that possible.

The four basic financial statements are the balance sheet, income statement, statement of retained earnings and the statement of cash flows. The balance sheet includes the liabilities, assets, and stockholder’s equity of an organization. The balance sheet is usually used at the end of a month or the end of the year for a company. On a...