Financial Statements Paper

Running head: FINANCIAL STATEMENTS PAPER

Financial Statements

Keith Scott

ACC/280 Principals of Accounting

Chuck Koelsch

Monday, March 14, 2011

The success of corporations and businesses in the world heavily depend on its financial management capabilities. The capture and analysis of financial management is Accounting. Accounting is when the company identifies, records, and communicates economic events to external and internal users. The three actions of identifying, recording, and communicating are derived from various accounting reports. There are four basic financial statements: Income statements, Retained Earnings Statements, and Statement of Cash Flows.

INCOME STATEMENT

Income statements reflect the company’s profits and losses over a specific period. Businesses through various activities generate revenue and create expenses to operate. The activities show on the income statement by listing revenue first followed by expenses. The data is recorded in such order to determine the net income or net loss results. Net income occurs when revenue exceed expenses. Net loss occurs when expenses exceed revenue. This is very important data needed to prepare the other financial reports. The development of the corporate form of organization continues to emphasize the primary importance of the income statement in financial reporting (Tilly, 1948).

RETAINED EARNINGS STATEMENT

Retained earnings statements reflect the changes in the company’s retained earnings for a specific period. Retained earnings are earnings the company has kept after recording revenue then deducting expenses and dividends from the revenue. The data basically tells why earnings increased or decreased during the time frame requested. The variance in the earnings statement is important information for the company to record. An examination of retained earnings should be made from two viewpoints: the lessons of the past and the plans of the...