The Four Basic Financial Statements

The Four Basic Financial Statements

Christina Greenhaw

ACC/290

Lori Hines

The four basic financial statements are as follows: balance sheet, income sheet, retained earnings statement and statement of cash flows. When a business is formed you will need to make sure you are able to keep track of all your incoming and outgoing expenditures. First we will start with the financial statements.

“The income statement reports the success or failure of the company’s operations for a period of time” (Kimmel, Weygandt, Kieso, 2009). Usually, a company will use the income statement to list its revenues and expenses. In this statement you are going to be able to determine the company’s net income or the loss by subtracting their expenses from what they are bringing in in revenue. By using these income statements, it gives evidence of what a company or corporation is bringing in in income for their investors. It gives insight on an organizations net income. If the investors or creditors believe that a company is successful it drives up stock prices. Creditors want to see that the earnings of a company are high believing that they will be repaid in full.

“The retained earnings statement shoes the amounts and causes of changes in retained earnings during the period” (Kimmel, Weygandt, Kiseso, 2009). If a company is making a profit it shareholders can be paid in dividends, but most of the time they do not do this. The amount of the company’s earnings are listed first on the statement. It will add the net income and then deduct the dividends to see what the company has made during that period. If a company is losing money they would deduct it from that earnings statement. Most investors will find a company that payout high dividends. Then you have those investors that will reinvest those earnings into the company that they had originally invested in. This only increases the earnings of the company.

“The balance sheet reports assets and claims to assets at a specific...