Acct 561 - 4 Types of Financial Statements

Four Types of Financial Statements

University of Phoenix

ACC 561

2011

Introduction

This paper will discuss and explain the four different types of financial statements principally using in accounting practices. The four types of financial statements are balance sheet, income statement, retained earnings statement, and statement of cash flows. The information will also communicate which financial statements or statements are of the most interest to investors, creditors, and management.

Balance Sheet

The balance sheet provides a snapshot of a company’s finances at a specific interval or timeframe. A balance sheet clearly depicts what effects a company owns and what debts are outstanding. Accounting principles state that assets and debts owed to creditors and stockholders must balance (Kimmel, Weygandt, & Kiesco, 2009) translated into an equation Assets = Liabilities + Stockholders’ Equity. The balance sheet is useful to both creditors and company mangers. Creditors scrutinize a balance sheet for financial stability and managers to assure finances are adequate to handle day-to-day operations and company longevity (Kimmel, Weygandt, & Kiesco, 2009).

Income Statement

The income statement reflects a company’s operation financially during a particular time. An Income statement documents an entity’s Income and expenditures during a particular time frame. The money earned is traditionally listed first on the statement and then the outflow. The equation that reflects an income statement is Revenue – Expenses = Net Income or Net Loss (Kimmel, Weygandt, & Kiesco, 2009). Both Creditors and Investors pay close attention to income statements; investors want to invest in a successful company to maximize stock earnings and creditors want the reassurance that a company is fiscally sound and capable of meeting their obligations.

Retained Earnings Statement

A retained earnings statement shows the amount shareholders of a...